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In the current economy many are in the process of making financial moves and their credit standing will play a major role. If you are one who plan on making major financial moves in the future, it is imperative that you know the way the credit scoring system operates and you take a “proactive approach” in the management and improvement of your finances.
In this discussion you can learn what you can do to work toward improving your credit and using credit for your and your family’s best interest and not for the greater benefit of creditors and others who do not have your best path toward success in mind. By making a serious commitment to comprehend and apply the “credit scoring” concepts below based on your unique goals that you have, you will put yourself on a path to attaining a credit score where lenders can’t say no!
Know the 3 Major Credit Bureaus & How They Operate
Transunion
Equifax
Experian
Transunion, Equifax, and Experian are the three major players when it comes to the credit bureaus or credit reporting agencies. It is your responsibility to know the 3 major credit bureaus and an easy acronym that you can use is TEE. Think of TEEing off, only it is not for golf but for managing your credit more effectively throughout your lifetime!
You can go to annualcreditreport.com to get your credit report from all three credit bureaus once per year at no cost to you. Additionally, if you are denied credit or turned down from a job based on your credit file, you will be entitled to a free credit report.
The 3 credit bureaus or credit reporting agencies as they are commonly called, assemble files on you based on your name, addresses, social security number, date of birth, employment, and creditors that you owe or you have a relationship with such as credit card companies, student loan providers, auto loan providers, mortgage providers etcetera, and the agencies will note when you pay on time and when you pay late. If you have public record data, foreclosures, liens, rental defaults and other debtor payments that you “failed” to make–that too could appear in your credit file.
If you have “credit issues” be sure to visit the credit improvement discussion on this site and/or be sure to purchase 1-2-3 Credit & Me if you desire to take control of your credit in a more forceful manner! Although effective credit management throughout your lifetime should be your goal, an UltraFICO score and Vantagescore 4 plus are alternative scoring models that offers those with a poor or non-existent credit history to get a score that some creditors will accept based on your banking activity with your checking and savings account(s).
You can go to the following sites to see where you now stand as far as your credit reports are concerned.
Know How Credit is Scored
You want to know what factors go into the scoring of credit. Negative information, utilization, time of credit, type of credit and hard inquiries all play a role in the scoring of your credit.
You can go to the following sites to see where you now stand as far as your credit score is concerned:
Others–your bank, credit card issuer and others that you may have a financial relationship with all offer free or nominal rate credit scores, monitoring and other products that could be of benefit to you. Bankrate.com offers ratings on various financial products and services that can possibly be of help to you and your family.
Also realize that there are 2 major scoring models and they are FICO and Vantagescore and by effectively managing the 5 credit factors you can “maximize your credit score” regardless of the scoring model that a creditor or others may use during transactions that you engage in during your lifetime.
To get an exceptional (800 plus credit score) score with your credit, you will need to consistently:
- Keep Negative information off of your credit report. It is important that you stay current for a number of years and always pay on time as you will show that you are a good credit risk by doing so.
- Keep your Utilization rate low. It is important that you keep your utilization of your available credit under 7%. You will pose less risk to lenders and your score will rise over time.
- Keep older accounts open over Time, as your score will rise the longer your credit record is. Once you get an average age of 9 years or more, you will be a serious candidate for the 800 club. You can still get there in a shorter time frame as well, depending on your overall credit management, income and particularly how you manage the credit factors that you are now learning.
- Know that the Type of accounts that you have are important. Those who are in the 800 club normally have about 6 revolving accounts and 5 installment accounts on their credit reports. In many cases they have several installment accounts in their credit file that have been paid off, but are still a part of their credit file. Credit cards, installment loans, mortgage loans, retail loans etcetera will be weighted. Always realize that your credit mix will be more important if your credit report doesn’t have a lot of other information to base a FICO® Score on.
- Know that when you apply for new credit an Inquiry goes on your report. A new inquiry has the effect of reducing your score for a period. Those who are not actively looking for new credit pose less risk. Those in the 800 club generally have not applied for new credit in the past 12 months.
Know How to Manage Your Credit Effectively
You want to be more than just aware of the credit bureaus and how your credit is scored. You want to proactively get out in front of your credit and do the work upfront so that you can have a lifetime of credit success, or credit success for the period in your life that you desire to utilize credit.
By keeping late payments or negative information off your credit report, utilizing 10% or less of your available credit, keeping your accounts open over a period of time, having the right type of credit based on your goals and keeping hard inquiries to a minimum based on your goals, you can position yourself for a lifetime of credit and financial success.
You also want to ensure that you pay off or pay down burdensome debt like revolving accounts and you properly establish an emergency fund at the earliest time possible.
Conclusion
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It is important that you manage your credit and finances in an intelligent, consistent, and proactive manner and not show concern for your credit after you have damaged or mismanaged your credit and finances.
You also want to ensure that your credit usage align with your goals, as you don’t want to purchase a car or get a home mortgage if you have no need for the car or you prefer renting or don’t like the added responsibilities that come with home ownership.
Even if your “credit mix or type of credit” is not ideal, if you pay your revolving debt on time over time, you will see a gradual and steady increase in your credit score and you will have a good to excellent score that may allow you to achieve your short, intermediate and long-term goals successfully. If your credit is not ideal and traditional credit card issuers won’t issue you a card, you may need to get several secured credit cards to help rebuild your credit if you have had several major dings in the past and your current score is not at the level that allows you to get a loan at a good rate.
If you are “exceptional” in paying on time over time and utilizing your available credit appropriately over time and you are good, very good, excellent, or exceptional by paying on time over time, having different types of credit and keeping your inquiries low–you will eventually get to the 800 plus club (800 or more credit score).
Again, you want to be aware that there are two major credit scoring models and they are FICO and VantageScore, and creditors may use either one of the models when you apply for new credit. If possible, you may want to get information from the potential creditor in advance to determine the model they use–as well as the version so that you can plan, strategize and negotiate better.
Also realize that there are different versions and year of release of those versions when it comes to scoring models, as older and newer versions are on the market at the same time and creditors may use older or newer models and differing versions of those models. Some models will even take your score up to 900! In addition, there are “industry specific” models and versions that you want and need to be aware of!
In addition to managing your credit wisely, you want to do your due diligence in all areas of your finances by proactively knowing what you need to do and what you need to avoid–not re-actively as it is often too late to take corrective action or the action that serves your best interest and not creditors and others after the transaction has occurred! It is imperative that you learn credit card basics prior to running up astronomical balances–as you want to manage your credit wisely from day one when possible!
By implementing the above steps in your life at the earliest time possible you can get out in front of your credit and manage your credit to your advantage and not creditors. Effective credit management will put you in the “scoring range“ that allows you to have the “audacity to be you” as you pursue your goals and what you desire to see most come true!
However, the audacity to be you is contingent upon you doing what you need to do!
All the best to your credit scoring success as you now should expect nothing less…
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