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CREDIT EDUCATION
Credit scores come from three different bureaus,
which lenders use to view your credit history:
Your Fico Score (Trans Union)
Your Beacon Score (Equifax)
Your Isaac Score (Experian)
Each credit bureau calculates your credit
score independently, using their own unique software. Furthermore, your score
may vary depending on the reason you are checking your credit at that
time. If you are buying a car, your credit score may be different than when you
are seeking a mortgage, applying for a credit card, or getting your "free credit
report," and so on. When it comes
to credit, your history is vital to your future. Each and every decision you
have made and will make will have a noticeable and definite effect on your
ability to acquire financing and borrow money in the future. Since
credit plays such a
critical part in your life, it would behoove you to spend some time learning how
to maintain and/or improve your score. These two aspects are where you should
begin your education:
Credit
Scores
When it comes to getting a loan,
who you are on paper is who you are period in the eyes of a lender. The higher
your credit score, the less riskier the investment. And ultimately, that's what
lenders are all about: minimizing risk. Thus, if you want to improve your
chances of being seen as a "safe bet" to a lender and convince them that you
will repay your borrowed funds in a timely manner, you must maintain a solid
FICO® score. This score will determine what your interest rate will be, and if
you get a loan in the first place.
Elements of Your Score
Before you can improve your score, you must understand what exactly makes up
your score.
Are
There Any Benefits to Being Reduced to a Number?
There are a few reasons why a quick, objective measurement of your credit
worthiness could be a benefit to you.
Improving Your Score
Once you understand what determines your credit score, you can begin to bolster
your chances of securing a loan on the best possible terms.
Myth
v. Fact
Learn the truth and common misunderstandings about credit scoring.
Credit Analyzer
You may be surprised to learn the a huge number
of credit reports actually contain errors which negatively affect your score,
and thus your ability to secure financing.
Credit
Analyzer offers 4 distinct services that you might want to consider.
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Credit Scores
Along with
the credit report, lenders can also buy a credit score based on the information
in the report. That score is calculated by a mathematical equation that
evaluates many types of information that are on your credit report at that
agency. By comparing this information to the patterns in hundreds of thousands
of past credit reports, the score identifies your level of future credit risk.
In order for
a FICO® score to be calculated on your credit report, the report must contain at
least one account which has been open for six months or greater. In addition,
the report must contain at least one account that has been updated in the past
six months. This ensures that there is enough information - and enough recent
information - in your report on which to base a score.
About
FICO scores
Credit bureau scores are often called "FICO scores" because most credit bureau
scores used in the US are produced from software developed by Fair Isaac and
Company. FICO scores are provided to lenders by the three major credit reporting
agencies: Equifax, Experian and Trans Union.
FICO scores provide the best guide to future risk based solely on credit report
data. The higher the score, the lower the risk. But no score says whether a
specific individual will be a "good" or "bad" customer. And while many lenders
use FICO scores to help them make lending decisions, each lender has its own
strategy, including the level of risk it finds acceptable for a given credit
product. There is no single "cutoff score" used by all lenders and there are
many additional factors that lenders use to determine your actual interest
rates.
Other
Names for FICO Scores
FICO scores have different names at each of the three credit reporting agencies.
All of these scores, however, are developed using the same methods by Fair
Isaac, and have been rigorously tested to ensure they provide the most accurate
picture of credit risk possible using credit report data.
|
CREDIT REPORTING AGENCY |
FICO SCORE |
|
Equifax |
Beacon® |
|
Experian |
Experian/Fair
Isaac Risk Model |
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Trans Union |
Emperica® |
More than one
score
In general, when people talk about "your score", they're talking about your
current FICO score. However, there is no one score used to make decisions about
you. This is true because:
Credit bureau scores are
not the only scores used.
Many lenders use their own scores, which often will include the FICO score as
well as other information about you.
FICO scores are not the
only credit bureau scores.
There are other credit bureau scores, although FICO scores are by far the most
commonly used. Other credit bureau scores may evaluate your credit report
differently than FICO scores, and in some cases a higher score may mean more
risk, not less risk as with FICO scores.
Your score may be different
at each of the three main credit reporting agencies.
The FICO score from each credit reporting agency considers only the data in
your credit report at that agency. If your current scores from the three
credit reporting agencies are different, it's probably because the information
those agencies have on you differs.
Your FICO score changes
over time.
As your data changes at the credit reporting agency, so will any new score
based on your credit report. So your FICO score from a month ago is probably
not the same score a lender would get from the credit reporting agency today.
Credit Reports
As mentioned before, the three
credit bureaus - Equifax, Experian and Trans Union - each acquires and maintains their information
independently; so the data they have on you may vary between them.
What
Makes Up Your Credit Report
Once again, not all the data contained in your credit report is used to
determine your credit score, and thus credit worthiness. Furthermore, some of
the data may be inaccurate.
How
to Review
Your Report
As mentioned before, at least every year you should attain and go over your
credit report in detail. You should obtain a copy from each credit bureau,
especially before considering a major purchase.
Some
Fairly Recent
Credit Statistics
We now have a good amount of data about credit activity in the United States.
Credit Inquiries
What's a credit inquiry, and how does it affect your score? Do frequent
inquiries really negatively affect my score?
Improving Your Score
Payment History
Tips
Pay your bills on time.
Delinquent payments and collections can have a major negative impact on your
score.
If you have missed
payments, get current and stay current.
The longer you pay your bills on time, the better your score.
Be aware that paying off a
collection account will not remove it from your credit report.
It will stay on your report for seven years.
If you are having trouble
making ends meet, contact your creditor.
Talk to your creditor and ask them for an extension. This can help you avoid
late marks on your report.
Amounts Owed
Tips
Keep balances low on credit
cards and other "revolving credit".
High outstanding debt can affect a score.
Pay off debt rather than
moving it around.
The most effective way to improve your score in this area is by paying down
your revolving credit. In fact, owing the same amount but having fewer open
accounts may lower your score.
Increase your credit
limits on your existing credit cards.
This will increase the amount of credit you have, and in effect, will
increase your scores.
Consolidate
your consumer debt with a mortgage
Don't close unused credit
cards as a short-term strategy to raise your score.
Don't open a number of new
credit cards that you don't need, just to increase your available credit.
This approach could backfire and actually lower score.
Length of
Credit History Tips
If you have been managing
credit for a short time, don't open a lot of new accounts too rapidly.
New accounts will lower your average account age, which will have a larger
effect on your score if you don't have a lot of other credit information.
Also, rapid account buildup can look risky if you are a new credit user.
New Credit Tips
Do your rate shopping for a
given loan within a focused period of time.
FICO® scores distinguish between a search for a single loan and a search for
many new credit lines, in part by the length of time over which inquiries
occur.
Re-establish your credit
history if you have had problems.
Opening new accounts responsibly and paying them off on time will raise your
score in the long term.
Note that it's OK to
request and check your own credit report.
This won't affect your score, as long as you order your credit report directly
from the credit reporting agency or through an organization authorized to
provide credit reports to consumers.
Types of Credit
Use Tips
Apply for and open new
credit accounts only as needed.
Don't open accounts just to have a better credit mix - it probably won't raise
your score.
Have credit cards - but
manage them responsibly.
In general, having credit cards and installment loans (and paying timely
payments) will raise your score. Someone with no credit cards, for example,
tends to be higher risk than someone who has managed credit cards responsibly.
Note that closing an
account doesn't make it go away.
A closed account will still show up on your credit report, and may be
considered by the score.
Re-Score Services
Credit file corrections at all 3
Repositories - modify credit scores in 72 hours or less
A national credit
association study discovered more than 80% of repository credit files contained
errors, and most of those errors will reduce the score.
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Rescore/Credit Analyzer Request
Form |
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Of course consumers
can personally notify the repository, but the process is slow - more than 30
days if everything is done right the first time, and as long as 90 days if there
are problems. If you're qualifying for a new mortgage loan, you just can't wait
that long
With Re-Score
services, our customer service people work directly with the credit repositories
to get corrections made Usually, the corrected credit report is ready to pull in
72 hours or less.
Since the corrected
credit is usually higher, more applicants can qualify for the best loan
products. This is the quickest way to improve your credit score!
Credit Analyzer
Credit Analyzer is
a very powerful and important credit product available today. Credit Analyzer
provides four important services at a surprising low cost;
Credit Analyzer can help you with the following;
Special analysis
and report of an applicants credit details
Listing of
potential duplications and erroneous entries
Listing of trade
line actions applicants should undertake to improve their credit scores
Real Time interactive rescore analyzer that vividly
demonstrates the impact of recommended actions
Checking Your Report
You should make sure the information in your credit report is correct. Not
only is your credit score based on this information, but lenders also review
this information in making credit decisions. Review your credit report from each
credit reporting agency at least once a year and especially before making a
large purchase, like a house or car. To request a copy, contact the credit
reporting agencies directly:
Equifax: (800) 685-1111,
www.equifax.com
Experian (formerly TRW): (888) 397-3742,
www.experian.com
Trans Union: (800) 888-4213,
www.transunion.com
If you find an error, you can;
1. "Re-Score" (72 hr
process) with us.
-or-
2. The credit reporting agency must investigate and
respond to you within 30 days. If you are in the process of applying for a loan,
immediately notify your lender of any incorrect information in your report. Your
lender will need to reorder your credit report and score once any changes have
been made to your information at the credit reporting agency. Small errors may
have little or no effect on your score. If there are significant errors,
however, the lender may disregard the score.
Credit Management
•
Quarterly credit
reports rotated through all 3 bureaus
(reports
are full reports
not a watered down consumer version like you
would get from a consumer credit website).
•
Quarterly credit
review & analysis.
•
Quarterly home
valuation (when you own
real estate).
•
Personal
Credit/Debt Advisor to identify, address, and ultimately prevent any potential
credit problems.
•
Personal
Credit/Debt Advisor to identify and present to you any possible opportunities
that might be of benefit to you as well as answer any credit related questions
you may have.
•
Maintain Optimum Credit Scores
•
Always Qualify for the Lowest Rates,
Highest Loan Amounts, & Best Programs. Whether it’s for a mortgage or any other
credit related transactions.
•
Detect &/or Prevent Identity Theft.
•
SAVE TENS OR EVEN
HUNDREDS OF THOUSANDS OF DOLLARS ON INTEREST EXPENSES!
•
Consult a paralegal.
What's in a Score
FICO Scores are
calculated from a lot of different credit data in your credit report. This data
can be grouped into five categories as outlined below. The percentages in the
chart reflect how important each of the categories is in determining your score.
These
percentages are based on the importance of the five categories for the general
population. For particular groups - for example, people who have not been using
credit long - the importance of these categories may be somewhat different.
Payment History
Account payment information
on specific types of accounts (credit cards, retail accounts, installment
loans, finance company accounts, mortgage, etc.)
Presence of adverse public
records (bankruptcy, judgements, suits, liens, wage attachments, etc.),
collection items, and/or delinquency (past due items)
Severity of delinquency
(how long past due)
Amount past due on
delinquent accounts or collection items
Time since (recency of)
past due items (delinquency), adverse public records (if any), or collection
items (if any)
Number of past due items on
file
Number of accounts paid as
agreed
Amounts Owed
Amount owing on accounts
Amount owing on specific
types of accounts
Lack of a specific type of
balance, in some cases
Number of accounts with
balances
Proportion of credit lines
used (proportion of balances to total credit limits on certain types of
revolving accounts)
Proportion of installment
loan amounts still owing (proportion of balance to original loan amount on
certain types of installment loans)
Length of Credit History
Time since accounts opened
Time since accounts opened,
by specific type of account
Time since account activity
New Credit
Number of recently opened
accounts, and proportion of accounts that are recently opened, by type of
account
Number of recent credit
inquiries
Time since recent account
opening(s), by type of account
Time since credit inquiry(s)
Re-establishment of
positive credit history following past payment problems
Types of Credit Used
Number of (presence,
prevalence, and recent information on) various types of accounts (credit
cards, retail accounts, installment loans, mortgage, consumer finance
accounts, etc.)
Please note
that:
A score takes into
consideration all these categories of information, not
just one or two.
No one piece of information or factor alone will determine your score.
The importance of any
factor depends on the overall information in your credit report.
For some people, a given factor may be more important than for someone else
with a different credit history. In addition, as the information in your
credit report changes, so does the importance of any factor in determining
your score. Thus, it's impossible to say exactly how important any single
factor is in determining your score - even the levels of importance shown here
are for the general population, and will be different for different credit
profiles. What's important is the mix of information, which varies from person
to person, and for any one person over time.
Your FICO score only looks
at information in your credit report.
However, lenders look at many things when making a credit decision including
your income, how long you have worked at your present job and the kind of
credit you are requesting.
Your score considers both
positive and negative information in your credit report.
Late payments will lower your score, but establishing or re-establishing a
good track record of making payments on time will raise your score.
What's in Your Report
Although each
credit reporting agency formats and reports this information differently, all
credit reports contain basically the same categories of information. Your
social security number, date of birth and employment information are used to
identify you. These factors are not used in scoring. Updates to this information
come from information you supply to lenders.
Identifying Information.
Your name, address,
Social Security number, date of birth and employment information are used to
identify you. These factors are not used in scoring. Updates to this
information come from information you supply to lenders.
Trade Lines.
These are your
credit accounts. Lenders report on each account you have established with
them. They report the type of account (bankcard, auto loan, mortgage, etc),
the date you opened the account, your credit limit or loan amount, the account
balance and your payment history.
Inquiries.
When you apply for
a loan, you authorize your lender to ask for a copy of your credit report.
This is how inquiries appear on your credit report. The inquiries section
contains a list of everyone who accessed your credit report within the last
two years. The report you see lists both "voluntary" inquiries, spurred by
your own requests for credit, and "involuntary" inquires, such as when lenders
order your report so as to make you a pre-approved credit offer in the mail.
Public
Record and Collection Items.
Credit reporting agencies also collect public record information from state and
county courts, and information on overdue debt from collection agencies. Public
record information includes bankruptcies, foreclosures, suits, wage attachments,
liens and judgments
How Mistake Are Made
When a
credit report contains errors, it is often because the report is incomplete, or
contains information about someone else. This typically happens because
The person applied for
credit under different names (Robert Jones, Bob Jones, etc.).
Someone made a clerical
error in reading or entering name or address information from a hand-written
application.
The person gave an
inaccurate Social Security number, or the number was misread by the lender.
Loan or credit card
payments were inadvertently applied to the wrong account.
How Scoring Helps You
Credit
scores give lenders a fast, objective measurement of your credit risk. Before
the use of scoring, the credit granting process could be slow, inconsistent and
unfairly biased.
Credit
scores - especially FICO® scores, the most widely used credit bureau scores -
have made big improvements in the credit process. Because of credit scores:
People can get loans
faster.
Scores can be delivered almost instantaneously, helping lenders speed up loan
approvals. Today many credit decisions can be made within minutes. Even a
mortgage application can be approved in hours instead of weeks for borrowers
who score above a lender's "score cutoff". Scoring also allows retail stores,
Internet sites and other lenders to make "instant credit" decisions.
Credit decisions are
fairer.
Using credit scoring, lenders can focus only on the facts related to credit
risk, rather than their personal feelings. Factors like your gender, race,
religion, nationality and marital status are not considered by credit scoring.
Credit "mistakes" count for
less.
If you have had poor credit performance in the past, credit scoring doesn't
let that haunt you forever. Past credit problems fade as time passes and as
recent good payment patterns show up on your credit report. Unlike so-called
"knock out rules" that turn down borrowers based solely on a past problem in
their file, credit scoring weighs all of the credit-related information, both
good and bad, in your credit report.
More credit is available.
Lenders who use credit scoring can approve more loans, because credit scoring
gives them more precise information on which to base credit decisions. It
allows lenders to identify individuals who are likely to perform well in the
future, even though their credit report shows past problems. Even people whose
scores are lower than a lender's cutoff for "automatic approval" benefit from
scoring. Many lenders offer a choice of credit products geared to different
risk levels. Most have their own separate guidelines, so if you are turned
down by one lender, another may approve your loan. The use of credit scores
gives lenders the confidence to offer credit to more people, since they have a
better understanding of the risk they are taking on.
Credit rates are lower
overall.
With more credit available, the cost of credit for borrowers decreases.
Automated credit processes, including credit scoring, make the credit granting
process more efficient and less costly for lenders, who in turn have passed
savings on to their customers. And by controlling credit losses using scoring,
lenders can make rates lower overall. Mortgage rates are lower in the United
States than in Europe, for example, in part because of the information -
including credit scores - available to lenders here. Knowing and improving
your score can also lead to more favorable interest rates.
Credit
Inquiries
What is a credit
inquiry?
A credit
inquiry is an item on a credit report that shows a business with a "permissible
purpose" (as defined under the federal Fair Credit Reporting Act) has previously
requested a copy of the report.
Not all
inquiries count toward your FICO score
When you
check your credit report, you may notice that a number of credit inquiries have
been made, sometimes from businesses that you don’t know. But the only inquiries
that count toward your FICO score are the ones that result from your
applications for new credit.
--Inquiries that count toward
your FICO score.
There is only
one type of credit inquiry that counts toward your FICO score. When you apply
for a mortgage, auto loan or other credit, you authorize the lender to request
a copy of your credit report. These types of inquiries, prompted by your own
actions, appear on your credit report and are included in your FICO score.
--Inquiries that don’t count
toward your FICO score.
Your own credit
report requests, credit checks made by businesses to offer you goods or
services, or inquiries made by businesses with whom you already have a credit
account do not count toward your FICO score. Credit checks by prospective
employers also do not count. These types of inquiries may appear on your
credit report, but they are not included in your FICO score.
Your FICO Score
is not affected when you check your credit
Checking
your credit reports regularly to be sure they are accurate and error-free is a
good idea. In fact, maintaining accurate credit reports is a part of good credit
management, which can help to improve your FICO scores over time.
You can
order all three of your credit reports with FICO scores at www.myFICO.com. You
can also order your credit reports from the credit bureaus. Either way, your
FICO score is not affected by your own credit report checks—which are voluntary.
How Inquiries
are factored into FICO Scores
There are
five types of information used to calculate a FICO score at any given point in
time. Each type of information counts as a percentage of a total FICO score:
These
percentages are based on the importance of the five categories for the general
population. For particular groups, such as people with relatively short credit
histories, the importance of the categories may differ.
Inquiries
are a subset of the "new credit" category shown above, which accounts for 10% of
the total FICO score. Their importance depends on the overall information in
your credit report. For some people, a given factor may be more important than
for someone else with a different credit history. In addition, as the
information in your credit report changes, so does the importance of any factor
in determining your score. What's important is the mix of information, which
varies from person to person, and for any one person over time.
Inquiries may or
may not affect your FICO Score
A FICO score
takes into account only voluntary inquiries that result from your application
for credit. The information about inquiries that can be factored into your FICO
score includes:
Number of recently opened
accounts, and proportion of accounts that are recently opened, by type of
account.
Number of recent credit
inquiries.
Time since recent account
opening(s), by type of account.
Time since credit
inquiry(s).
A FICO score
does not take into account any involuntary inquiries made by businesses with
whom you did not apply for credit, inquiries from employers, or your own
requests to see your credit report.
For many
people, one additional credit inquiry (voluntary and initiated by an application
for credit) may not affect their FICO score at all. For others, one additional
inquiry would take less than 5 points off their FICO score.
Inquiries can have a greater impact, however, if you have few accounts or a
short credit history. Large numbers of inquiries also mean greater risk: People
with six inquiries or more on their credit reports are eight times more likely
to declare bankruptcy than people with no inquiries on their reports.
What happens
when you apply for credit
When you
apply for credit, you authorize the lender to ask for a copy of your credit
report. This is how voluntary inquiries appear on your credit report.
The
inquiries section of your credit report contains a list of everyone who accessed
your credit report within the last two years. The report you see lists both
voluntary inquiries, spurred by your own requests for credit, and involuntary
inquiries, such as when lenders order your credit report to offer you a
pre-approved credit card.
Will my FICO
Score drop if I apply for new Credit?
If it does,
it probably won't drop much. If you apply for several credit cards within a
short period of time, multiple inquiries will appear on your report. Looking for
new credit can equate with higher risk, but most credit scores are not affected
by multiple inquiries from auto or mortgage lenders within a short period of
time. Typically, these are treated as a single inquiry and will have little
impact on the credit score.
What to know
about "rate shopping"
Looking for
a mortgage or an auto loan may cause multiple lenders to request your credit
report, even though you’re only looking for one loan. To compensate for this,
the score counts multiple auto or mortgage inquiries in any 14-day period as
just one inquiry. In addition, the score ignores all mortgage and auto inquiries
made in the 30 days prior to scoring. So if you find a loan within 30 days, the
inquiries won't affect your score while you're rate shopping.
Improving your FICO Score
If you need
a loan, do your rate shopping within a focused period of time, such as 30 days.
FICO scores distinguish between a search for a single loan and a search for many
new credit lines, in part by the length of time over which inquiries occur.
Generally,
people with high FICO scores consistently:
Pay bills on time.
Keep balances low on credit
cards and other revolving credit products.
Apply for and open new
credit accounts only as needed.
Also, here
are some good credit management practices that can help to raise your FICO score
over time.
Re-establish your credit
history if you have had problems. Opening new accounts responsibly and paying
them on time will raise your FICO score over the long term.
Check your own credit
reports regularly, and before applying for new credit, to be sure they are
accurate and up-to-date. As long as you order your credit reports directly
from the credit bureaus, or through an organization authorized to provide
credit reports to consumers, such as myFICO®, your own inquiries will not
affect your FICO score.
Facts and
Fallacies
Fallacy:
My score determines whether or not I get credit.
Fact:
Lenders use a number of facts to make credit decisions, including your FICO
score. Lenders look at information such as the amount of debt you can reasonably
handle given your income, your employment history, and your credit history.
Based on their perception of this information, as well as their specific
underwriting policies, lenders may extend credit to you although your score is
low, or decline your request for credit although your score is high.
Fallacy:
A poor score will haunt me forever.
Fact:
Just the opposite is true. A score is a "snapshot" of your risk at a particular
point in time. It changes as new information is added to your bank and credit
bureau files. Scores change gradually as you change the way you handle credit.
For example, past credit problems impact your score less as time passes. Lenders
request a current score when you submit a credit application, so they have the
most recent information available. Therefore by taking the time to improve your
score, you can qualify for more favorable interest rates.
Fallacy:
Credit scoring is unfair to minorities.
Fact:
Scoring considers only credit-related information. Factors like gender, race,
nationality and marital status are not included. In fact, the Equal Credit
Opportunity Act (ECOA) prohibits lenders from considering this type of
information when issuing credit. Independent research has been done to make sure
that credit scoring is not unfair to minorities or people with little credit
history. Scoring has proven to be an accurate and consistent measure of
repayment for all people who have some credit history. In other words, at a
given score, non-minority and minority applicants are equally likely to pay as
agreed.
Fallacy:
Credit scoring infringes on my privacy.
Fact:
Credit scoring evaluates the same information lenders already look at - the
credit bureau report, credit application and/or your bank file. A score is
simply a numeric summary of that information. Lenders using scoring sometimes
ask for less information - fewer questions on the application form, for example.
Fallacy:
My score will drop if I apply for new credit.
Fact:
If it does, it probably won't drop much. If you apply for several credit cards
within a short period of time, multiple requests for your credit report
information (called "inquiries") will appear on your report. Looking for new
credit can equate with higher risk, but most credit scores are not affected by
multiple inquiries from auto or mortgage lenders within a short period of time.
Typically, these are treated as a single inquiry and will have little impact on
the credit score.
Top Eight Reasons You Have a Bad
Credit Score
(1) Getting Rid of Credit Cards
What? That’s correct. Closing credit card accounts in an
attempt to increase your credit score is often a huge mistake. This seems
counterintuitive, I know. Here’s the problem: One of the most important things
when someone evaluates your credit to decide whether or not to loan you money is
your credit history. Having multiple credit card accounts and making the
payments on time for long periods of time makes you a less risky investment to
lenders. The information will be wiped away after seven years, and no one will
know how “Johnny on the spot” you were with your credit card payment on that
account.
The second, more important reason that you should not
close your credit card accounts is because of something called your debt to
income ratio. Pay close attention, because the credit score formula is being
updated, and this ratio will feature more heavily in the new calculation. Your
debt to income ratio is simply the amount of credit you COULD be using vs. how
much you ARE using. In other words, if you have $10,000 in available credit and
you have used $8,000 of it, you have a high debt-to-income ratio. This is bad.
This is where keeping your credit card account open comes in. If you have
more available credit, then the money you have spent is less
proportionately. In other words, if you spent the same $8,000 in the above
example, but had $15,000 in available credit, your debt-to-income ratio would be
lower, and thus your credit score higher.
(2) Late or Skipped Payments
Unfortunately, your credit history isn’t like your
dating history. When someone you’re dating asks you if you’ve ever cheated
before… well, the correct answer is always “no” of course. Unfortunately,
potential lenders don’t take your word for it when you tell them you’ve never
missed a payment. What would you do if the girl you were dating got to call
every one of your ex-girlfriend’s to find out if you ever forgot her birthday or
cheated on her? That would be terrible. Well, that’s what lenders get to do,
except they get it all in one convenient report.
So there’s no hiding from your irresponsible youthful
mistakes. How much you are penalized will depend on the frequency of your missed
or late payments, how recent they are, and how long the account was delinquent
for before you paid it off (if that ever happened).
(3) Frequent Credit Checks
The more people inquire as to the status of your credit,
the lower your score is. People make such inquiries when you are looking for
more credit sources. Thus, if you search for many lines of credit in a short
period of time, this is reflected on your credit report. Apparently, it has been
proven by statistics that people who shop for credit more often are riskier
lending propositions.
This one used to be a lot more important than it is now.
The
new credit score formula emphasizes this one a lot less than it used to.
(4) Settling Accounts
This happens when you
don't want or just can’t pay the bill. Say you
owe $5,000 dollars on a loan, and you just stop paying. You know the drill: the
constant requests, phone calls, letters, etc. Then all of a sudden you stop
hearing from them for a while. You take a deep breath and start walking upright
in front of windows again. Then all of a sudden you start getting communication
from the credit card company again, or some other company regarding the debt,
offering a settlement amount. If you pay this significantly lesser amount, they
tell you that your debt will be considered settled.
Well, alright! Of course I’ll pay you much less than I
owe and have you go away. Who wouldn’t? Well, unfortunately they still report
you to the credit agencies and this reflects very poorly on your credit report
for seven years, at the same level as other serious delinquencies. It’s
generally not good to settle an account if you can afford it.
(5) Treating every Credit Score Equally
Remember that every score available to you online may
not be your true FICO score, i.e. your score as created by Fair Isaac,
the standard in the credit industry. Make sure the credit report you purchase
contains your authentic FICO score.
(6) Not Knowing When to Dispute
You have right you know. Well, you probably don’t know.
So read this and then you will know. The Fair Credit Reporting Act (FCRA) is an act
which details your rights as far as your credit score is concerned. Among other
things, it says that there are only eight reasons why your credit report may be
pulled. Two of them are: If you want it or if it’s part of a transaction where
you agree to allow the other party to do so. Check out a full briefing on the
act for all the circumstances.
The act also says that you have the right to argue with
the credit bureaus regarding any information that you fell is not accurate. The
most recent amendment of the act allows everyone in the U.S. free access to
their credit report each year, which leads us to…
(7) Not Getting Your Credit Report for Free Each Year
There is no easier or faster way to raise your credit
score than to find mistakes in your credit report and correct them. And there is
no way to find mistakes other than pulling your credit report and scrutinizing
it for discrepancies between what information they have and what you know to be
true. Try our Rescore services which can help you correct credit score mistakes
and improve your credit score.
(8) Not Building a Credit History
That’s right; you have to play the game to potentially
reap the benefits. If you avoid all forms of credit like the plague, you might
be better off than some of us as far as getting into credit card debt; but
you’ll never develop a credit history. In this country, consumers who supervise
the use of their credit responsibly reap the rewards. If you never grow your
credit lines, you may come to regret it when it comes time to buy your dream
home or sports car. If you don’t have a credit score, your potential lenders
will not be able to evaluate your risk factor, and rather than going through the
time and expense of compiling that information… you’ll be biking to your
homeless shelter.
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