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Most people know a little something about a credit score. They know it can affect the types of financial products.
A good score allows you to get an unsecured credit card, competitive mortgage rates and vehicle loans, plus all other types of financial products.
You can see why having a good credit score is really important to your financial life.
This is because the higher interest rates you pay, the less money you’re going to have at the end of the month.
Right now, would you classify yourself as having a good credit score or a bad credit score?
Even if you have a good credit score, it can still be increased.
On the flip side, the lower your credit score, the faster it can increase.
If you’re trying to re-establish credit or just establishing credit for the first time, you’re in luck.
Regardless of your score, it’s key to start where you are.
Here are some numbers to know. Credit scores range between 300 to 850.
Only about 1% the American population has an 850 perfect credit score.
The good news is, you don’t need a perfect credit score.
A credit score of 760 is usually the cutoff to getting really attractive interest rates.
This credit score number is just a snapshot of your credit-worthiness
A credit score is officially called a FICO. It comes from the Fair Isaac Corporation.
The official fico score was introduced in 1989 and it was a way to make credit decisions impartial and fair.
This impartial tool used to evaluate credit risk and it pretty much changed the credit landscape for good.
In the days before credit, people were often denied credit based on who they knew.
If you knew the Lender, chances are you would get a loan.
This opened up the door to a lot of unfair treatment.
This is because the system was not fair, it wasn’t fact based and it wasn’t consistent.
Your credit score can be used in other ways and not just for financial products.
Your employer or prospective employer can also request a copy of your credit report.
Keep this in mind. You must ALWAYS grant permission for anyone, even your employer to access your credit report.
If they do it without your permission, it’s not cool; it’s against the law.
Who are the keepers of the score?
There are three major credit bureaus; Experian, Transunion and Equifax.
These are the ones most financial companies report your credit history to.
The first step in improving your credit score is to see what’s on your credit report because that ties into your credit score.
You can get a free credit report from these three nationwide credit bureaus.
If you prefer, you can call 1-877-322-8228.
Mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281
If you or someone you know is deaf or hard of hearing, they can access the TDD Service by calling 711 and referring the relay operator to 1-800-821-7232.
For those who are visually impaired, the free annual credit report in available in Braille, large print and audio format.
Call 877-322-8228. Here are a couple of things about your credit report
Inaccurate information, such as negative items should automatically fall off your credit report seven years from the date of your first missed payment.
Request a copy of your free credit report and thoroughly review it to ensure there is no inaccurate information reported.
Things such as an incorrect social security number, address or names.
Let’s look at how your credit score is calculated.
Payment History
Your payment history accounts for 35% of your credit. You don’t want to miss payments because this is something that can negatively impact your credit score.
Late payments can stay on your credit report for up to 7 years!
You really want to be vigilant and making sure you don’t let life get in the way and cause you to make late payments.
One suggestion is to set up automatic payments with your credit cards or financial institutions.
This way, if life gets in the way and you forget to pay your bill on time, you’re not going to be penalized and get hit with a late fee, and have it impact negatively impact your credit score for up to 7 years.
Amount of Debt
Next is the amount of debt which accounts for 30% of your score.
It’s referred to as credit utilization. This is how much of your credit lime you’re using and is based on your credit limit.
For example, if you have a credit card with a $1,000 credit limit your balances should never exceed 30%.
Experts often recommend aiming for a credit utilization of 10% although having a ratio of up to 30% usually doesn’t impact your credit score.
Once your ratio is above 30%, it begins to negatively impact your credit standing.
