Credit Score

Surprising Facts about Your Credit Score You May Not Know

January 24, 2016 by illinois

There is a lot of urgency when you think of your credit score and while you know it should be good there are a number of surprising facts about your credit score that you may not know. In order to have your best credit score you need to have an A-class credit report which means that having a good credit report is the key to having a good score. But how important is it to have a good score?

[Read: How to Improve Your Credit Score]

With a high credit score which equals to above 750 you will reap a number of benefits. You can save money in mortgage interest, you can benefit from lowered car insurance premiums, you could get approved for that new rental in that upscale neighborhood or community and you could even get a better job. But we all knew that having a great score is a good thing, so what is it that a lot of us don’t know? Here are some surprising facts about your credit score that you may not be knowledgeable of.

Credit Bureaus

There are a number of credit bureaus; those that offer a FICO credit score are Experian, TransUnion and Equifax. These track information on how you use credit. This information is used to maintain a FICO credit score for each individual in their customer database. Hence you can have three different credit reports – one from each bureau and multiple credit scores. Your FICO credit score may vary from credit bureau to bureau because each bureau will have some information that may be slightly different from the other. Sometimes these differences cause significant differences in your credit score.

Credit Reports/Credit Scores – What’s the Difference?

Your credit report and your credit score is again – not the same thing. Your credit report is basically a database with your credit history. It includes what type of credit you may have, how you use credit, what accounts you have including open and closed accounts, amounts owed, your payment history and your credit limits. Your FICO credit score is then generated based on the information that will be found in your credit report. The credit score can range anywhere from 300 (low) to 850 (high). And while we are on the topic of FICO credit scores let’s talk about those in detail.

FICO Credit Scores – Are they All the Same?

Among the not so surprising facts about your credit score is that not all credit scores are FICO credit scores. FICO refers to one type of credit scoring formula and stands for Fair Isaac Corporation which is the firm that created the score. It is one of the more recognized and highly used credit scoring formulas currently in use but there are still many other formulas that are used by different agencies. Sad to say those free scores that you get, aren’t FICO scores. But thanks to the Fair and Accurate Credit Transactions Act you can get a copy of your credit report for free from each of the agencies mentioned above. You can access this from the website annualcreditreport.com.

More Surprising Facts about Your Credit Score

Everybody doesn’t have a credit history and hence won’t have a credit score. Persons who have never used credit or have never applied for any type of credit won’t have credit history and hence no FICO credit score
It won’t hurt your score if you get a credit report. It is possible for your score to be lowered if creditors inquire about your score but when you check your own score it does not have a negative effect on your credit history and hence won’t affect the score.
Maxing out your credit card will reduce your score. This is one of the more surprising facts about your credit score because many people think that as long as you make your minimum payments on time you are good. Data released by Fair Isaacs Corporation notes that maxing out your cc will cause your FICO credit score to go down anywhere between 10 and 45 points.
The Federal Trade Commission notes that out of every 5 people, 1 individual is prone to having a mistake on one of their credit reports. So get that annual free report so you can take the necessary steps if you find an error on your credit report.
Credit reports and scores will not warn you about identity theft at a fast enough rate. This is another of the surprising facts about your credit score that a lot of people don’t know.
Your score can always be improved regardless of how low it currently is. This is true even if you have gone through foreclosure or even if you have filed for bankruptcy. These negative things will stay on your credit report forever so you can improve your credit score over time.

[Read: Debt-to-Credit Ratio and Your Credit Scores]

Our compilation here features some of the most surprising facts about your credit score that the average consumer may not know. Some of these you may have been aware of while others you may not have. But now armed with this information you no longer have to get anxious whenever your credit score or the need for a credit report comes up.

Damaging Your Credit Unintentionally

December 30, 2015 by illinois

Credit Scores and reports get mixed reviews when it comes to consumer opinion and the slew of sites available to ‘help’ consumers are not short of misinformation or untrue myths. Understanding your credit score and the information contained in your report can be the difference between credit wellness and unintentionally damaging your credit scores.

Some of the myths that are floating around are as old as the internet and likely to stick around without proper consumer education. What do you need to know to keep your credit scores healthy and your lending power high? Let’s explore.

[Read: Your Rights With Credit Reports]

Your Credit is a Reflection of your Spouse’s Credit and you only have one.

This is incorrect and untrue. This myth has been one of the most frequently listed misconceptions among the FAQ pages of lender sites and consumer awareness information sites. From the beginning of my career and the start of researching actual credit awareness, I found that the most common misconception is that married couples not only share their scores but they also only have one. It makes sense, one person one score but this is not the case and it is wise to know the way credit works, prior to applying for it.

Credit is not a one and done situation where all people have one score and when they combine their last names, they combine their credit. Thankfully for the credit savvy who marry the not so up to par on credit spouse, they don’t become a victim of their spouses credit scores. If that were the case more people would be held back from school loans, home loans, and car purchases. Luckily that is not the case and each person has three scores with the average score or mid-FICO being calculated as the average of these three.

The credit bureaus are separate entities that operate in a similar fashion though not all creditors receive the same information. This is because some companies may report to all three bureaus while others may report to one or two at most. The key items to remember when establishing and maintaining credit is;

There are three bureaus TransUnion, Experian, and Equifax.
Companies are not required to report to all three. They can choose one, two, or none.
Married couples do not share a single score
Consumers, in general, have three scores

Damaging your score by not having credit

Consumers also seem to believe that if they live a cash lifestyle and avoid debt all together it will look better on their credit report. However, lenders want to see a good mixture of debt and an understanding of how credit works based on payment history and account age. While there is nothing wrong with living life debt free, carrying some debt is not always a bad thing so long as it is the right kind of debt. Great examples of debt that is not counted against you are;

Car Loans
Mortgage Loans
Student Loans

However, having high credit card balances and debts may send up a red flag. Also understanding that student loans although not due initially until the end of your college career are counted as payments you need to make in the future. Having these will not adversely damage your credit score but it may unintentionally lower your score if not managed properly.

Lowering your Limit Could Lower Your Scores

It sounds like a great idea when you’re going over your credit report and notice you have a high account limit on one of your cards. To avoid overuse or misuse, you may think it a great idea to have the limit lowered and save yourself the heartache of potentially abusing the limit to a point that payment is difficult and you’re carrying a higher balance than you’re comfortable with. This is a mistake. Creditors look at your limits and usage and compare these to see if you can handle credit. If you lower your limit this could potentially be [and unintentionally] damaging your credit score since the lower limit now looks like you’re carrying a higher balance, even if you didn’t change the balance at all. Ultimately you want to

Increase limits
Keep or lower balances
Utilize less than 30% of debt
Make payments on time
Payoff full balance when possible

Reducing Accounts Could Lower Your Scores

Another instance that may seem like a smart move but is a source of damaging your credit score unintentionally is closing account especially older accounts in good standing. Creditors are looking at your history and credit usage and in order to determine this check the age of your accounts along with the balances and limits. If you’re closing your oldest account, this can drop your score drastically because now your report appears too immature and inexperienced with credit. Avoid a headache and keep those green accounts going.

Opening Retail Cards and Carrying Small Balances Can Cost You

It’s been said [incorrectly] that maintaining a small balance each month on your cards is a way to show you have great debt management skills but the truth is the less you carry the better off you look. Opening too many accounts is also another unintended hit against your score. Having four retail cards with a balance only alerts the lenders that you’re not in control of your credit and have insufficient skill to maintain your current debts. It’s always best to;

Maintain $0 balance on all accounts
Avoid opening too many new accounts
Pay balances in full whenever possible

Shopping Around can [accidentally] Bring Scores Down

Finally in solving the damage we do to our credit accidentally is bringing our scores down by shopping around. When applying for loans getting the best interest rates and pricing is the goal but what happens when all of the inquiries triggered are added to credit reports? Scores lower thanks to the dings that are created with every check. Keeping all inquiries for the same products (i.e. cars, home loans, etc.) within a two-week time period (or 14 business days) will lessen the blow but it can still bring your scores down. Shopping around may be the smartest way to shop to ensure you’re getting the best loan for your dollar but make sure you’re shopping smart when sending out those invitations to look at your credit history.

[Read: Your Rights With Credit Reports]

While all of the rumors and myths are unlikely to go away anytime soon being educated on how you effect your own score will give you the upper hand when it’s time to actually apply for that needed loan. Keep in mind the tips here and you’ll be a credit rock star.

It’s Time to Dump Your Credit Card

February 3, 2015 by illinois

You might have been using the same credit card for years now while thinking you’re getting a great deal the entire time. You don’t pay those junk letters and advertisements for new credit cards any mind because you’ve got it so good with your current provider, right? You might think you’re right, but it might also be time to dump your credit card. There’s most likely some weaknesses in the structure your current card provider has built and you could be missing out where you don’t have to. The credit card industry is running over with competition and offers that exist to try and undercut the next company’s business, so you can believe there’s always a new product or service out there that you could be taking advantage of. Are you sure there’s got to be better rewards or interest rates out there for you? Just dump your credit card this year and start searching for some of the other options out there for you!

Help over the Phone Is Lacking

Have you ever ran into issues with your bill that you needed to have rectified over the phone only to find no help at all? The customer service department is there to help each customer in some way or another. If you find that your company doesn’t seem to have much concern for your issues, you might want to dump your credit card for a provider that’s more understanding and helpful. Your time and problems are important, and you should get that sense from the customer service department: regardless of what you’re calling about.

It should be very easy to find information about the credit card providers with the best customer service departments.

Those Rewards Aren’t Useful Enough

The value of a good rewards program has been driven up in recent years and the person that’s had the same credit card for ten years is almost certainly not getting the same rewards and perks as the person that just opened up a credit card account this year. Cash back rates have risen astronomically and the lists of perks you could seem to be getting longer and longer. There’s no reason that you should be missing out on upgraded rewards and you might want to dump your credit card to see what’s out there waiting for you.

In some cases, if you’ve already got one type of card with a provider you like, you might be able to switch to another, more valuable credit card in their lineup without incurring any fees or penalties: this is especially true of the clients with strong payment histories.

Your Credit Score Is Even Better Than Before

It’s no big secret that different clients are offered different rates at the time of application depending on their credit score and worthiness. As long as you keep up with your payments and you pay down at least your minimum balances or more regularly, your credit score should improve over time. If this is the case, you’ll most likely get stuck with an interest rate that’s not very fair or reasonable. If you like your credit card provider enough, you could ask them to adjust your interest rate. If they don’t want to budge, you should just dump your credit card account and start with a new provider that’s likely to be more reasonable.

You might want to apply for a new credit card before cancelling your old account. Make sure you search around well for the best rate you can get before going with the first one you find.

Your Life Is Different and You Need More

Maybe you were a less responsible person when you initially applied for your credit card. Perhaps you used to be in the habit of racking up hefty balances only to pay them off little by little, but now you strive to pay your bills off in full before they’re due. If that sounds similar to your situation, you probably could afford to pay a little more in interest to get even better rewards that you can use.

If the opposite is true for you and you’ve got a great rewards program but very high balances, you might want to consider trying to dump your credit card for a lower-interest option that doesn’t bind your finances so heavily.

You’re getting out Of the Country

Most of the credit cards on the market today charge at least three percent for any purchases made outside of the United States. It goes without saying that your balance will add up very quickly if you’re planning a trip out of the country and using your credit card the entire time. If you’ve got an older generation credit card, it might not have the smart chip in it that’s crucial for using an ATM in another country.

If it’s time to dump your credit card, there’s more than enough options out there for you to choose!

What You Need to Know About the Information in Your Credit Report

October 19, 2013 by illinois

The information in your credit report is one of the two determining factors that affect the quantity and cost of credit available to you (the other being your income level). In today’s modern consumer society, the use of credit is ubiquitous. Credit cards, automobile loans, installment loans for new appliances, and home mortgages are just a few examples of the way credit is commonly used. To say the least, life would be quite different without these various forms of credit. While the use of credit works well for the great majority of Americans, there are some who, for one reason or another, develop a history of not repaying their debt obligations in a timely way. Your credit report and credit score are intended to be an objective measurement of your personal credit worthiness – a measure that is completely independent of your race, gender, age, or place of national origin. Your credit report and credit score are intended to ensure that you will be treated fairly when you apply for credit.

Where Does The Information In Credit Reports Come From?

Many businesses see the ability to sell their products and services on credit as being a significant advantage. To minimize the obvious risks of extending credit, many businesses sign up as “data furnishers” to at least one of the country’s three major credit reporting agencies (Equifax, Experian, or TransUnion). Using software provided by the selected reporting agency, the businesses enter identifying information about you, the borrower, and then make regular entries regarding the timeliness of your payments, and whether or not you completely repay the loan. Being a data furnisher for a credit reporting agency is presumed to have a deterring effect on persons likely to not repay their loans. That advantage, however, carries with it an obligation to report all credit related transactions fairly and accurately.

Credit reporting agencies may also collect information from the public record. Public record information comes from courts, and includes liens placed on property, collection activities, bankruptcies, real estate foreclosures, etc.

The collected information is then passed to companies such as FICO which aggregates information from credit rating agencies, court records and a variety of other sources into your personal FICO credit report.

How Does FICO Use The Information In Your Credit Reports?

FICO presumes that the information they receive from credit rating agencies is accurate. Individuals have the right to review the information in each credit report provided to FICO by the three credit reporting agencies, and contest any information they believe is inaccurate or untrue. Information not successfully contested is then used to calculate credit scores. FICO scores for consumers take into account:

Payment history (35%) – Were monthly payments made on time and in full?
Debt (30%) – This category considers both the amount of debt and types of debt incurred. Types of debt include Revolving Debt (Credit Cards), Installment Debt (Auto or Appliance loans), and those debts which must be paid in each month (some store credit cards and the original American Express Card).
The length of your credit history (15%) – This is determined two ways; how long your credit file has been open, and the average age of the accounts on your credit file.
Account Diversity (10%) – Your credit score will benefit by showing successful repayment of a diverse set of account types on your credit file
Recent Authorized Credit Inquiries (10%) – So-called “hard Inquiries” indicating that you have been actively applying for one or more new lines of credit. A few are OK, but too many too fast can indicate a problem.

When you authorize a potential lender to “pull a credit check on you”, FICO provides the requested information to your lender for a fee. Presuming that your credit score is high enough, and information behind it is accurate, you realize the benefit of an objective analysis of your credit worthiness.

How Do I Make Sure The Information In My FICO File Is Accurate?

By law you are entitled to one free credit report per year from each of the three major credit reporting agencies. One of the principle intentions of this country’s credit reporting system is to protect your rights as a borrower. Credit reporting systems only works correctly in this regard if each individual takes responsibility for checking their own individual credit reports periodically. Errors do occur, including:

The inclusion of potentially injurious credit related transactions engaged in by persons other than you. These errors may be the result of outright identity theft, miss entry of identifying information by the vendor issuing you credit, careless in recording your payment history, or even simple confusion arising from chance similarities between your identifying information and that of other individuals with similar names, addresses, or other elements of personal information.
Inaccurate reports of late payments.
Failure to include information that a loan has been paid in full.
Failure to note closed store or revolving credit card accounts.

What Do I Do If I Find Mistakes?

If you find inaccurate or incomplete information in your credit report you need to:

Contact both the credit reporting agency (Equifax, Experian, or TransUnion) and the company that provided the information to the CRA.
Tell the credit reporting agency in writing what information you believe is inaccurate. Keep a copy of all correspondence.

Under The Fair Credit Reporting Act, the information provider is required to investigate and report the results to the credit reporting agency within 30 days. If the information is found to be incorrect, the information provider must notify all nationwide credit reporting agencies to correct your file. If the data provider’s investigation does not resolve your dispute, request in writing that notice of the dispute be included in your file, and reported every time the disputed information is released. If carelessness played a role in reporting inaccurate or incomplete information, the provider may be liable for civil damages. In most cases, however, the dispute resolution process ends successfully.