Here’s the scenario, you’re planning to get a big loan for a new house or a new car, yet you’re having a hard time finding a lending company that will offer you the low interest rate that you find fair and feasible enough based on your financial capability.
Most of these financial institutions conduct a background check about your past and current payment behavior. The first thing that they look out for is your credit score because it reflects whether you’re a good payer or not. Just like the player’s stats, your credit score measures your financial performance and the higher it is, the better your chance of getting low interest offers from creditors.
One of the major factor in your credit score is how much revolving credit you have versus how much you’re actually using. Ideally, the smaller the percentage, the better.
Improving your current credit score takes time. There’s no quick fix and magic formulas. Consistency of payment is the key to make your credit score soar high and become impressive to prospective lending institutions.
Let’s discuss the truth about your credit score:
Myth: Checking your credit reports will hurt your score
Fact: This is not true as long as it is a “soft inquiry.” Checking your own credit report or if a creditor checks your credit report as a background check are commonly called a “soft inquiry.” Ideally, everyone should check their reports at least annually as part of their good credit management.
In fact, the Fair and Accurate Credit Transactions (FACT) Act states that each legal U.S. resident is entitled to a free copy of his or her credit report from each credit reporting agency once every twelve months. The law requires all three agencies namely; Equifax, Experian, and Transunion to provide these reports.
Myth: Bad credit score can never be rebuilt
Fact: A credit report contains your credit history, and credit can be rebuilt over time. It keeps a record of all credit opened in a consumer’s name. It will indicate which items are closed or inactive, but the history remains nonetheless. Late or missed payments can stay on someone’s report for up to seven years.
Rebuilding credit means paying on time, looking for better credit options, and learning more about money and credit. Additionally, the longer a credit history is without negative information, such as late payments, the better.
Myth: Credit put Americans into financial mess and hardship
Fact: Credit is not really the problem. Spending too much is what people get into financial trouble. Credit is a financial tool that can be beneficial if used wisely. Everyone should set a budget to ensure they use their credit wisely and that they are not tempted to overspend.
Myth: Bankruptcy protection is perfect for people with really large amounts of debt.
Fact: Bankruptcy can remain on a credit report for up to 10 years and can make it difficult to get new credit. It’s much better to work with a certified debt consultant who may find better debt relief options for working with lenders to repay the debts. Settling the debts for less than originally agreed may be an option that will have a less long-lasting impact on a person’s ability to get credit.
Myth: There’s only one score that all lenders use to determine creditworthiness
Fact: There are many different credit scoring models used by lenders in the marketplace today. Consumers may be particularly familiar with FICO scoring but did you know that even FICO score has many versions that a lender can use? Depending on the industry or type of loan you need, FICO has a wide-range of score products specific for your lenders. The most widely-used is the FICO Score 8 that can be used for personal loans, student loans and other types of credit but there are also versions that can be used specifically for auto lending, credit card decisioning and mortgage lending. Generic scores may also be used by many types of lenders and businesses to determine general credit risk. In 2oo6, the three national credit reporting agencies — Experian, Equifax and TransUnion work together to develop VantageScore, a new generic credit score that uses the same formula for credit information from all three bureaus to compete with the FICO score. In 2014, VantageScore, claimed that 6 out of 10 largest banks used their scoring system and has over 3 Billion credit score pulls. The difference between FICO and VantageScore is that VantageScore calculations rely entirely on credit bureaus information and not income, bank accounts and other assets. It ignores paid or unpaid collections but focuses more on how likely you are to pay your credit each month.
Myth: Once a delinquent loan or credit card balance is paid off, the item is removed from a credit report
Fact: It’s not that easy. In fact, negative information such as late payments, collection accounts and bankruptcies will remain on a person’s credit reports for up to seven years. Certain types of bankruptcies stick around for up to 10 years. That means, paying off the delinquent account won’t be removed from a credit report, but it will update the account to indicate it as “paid.”
Myth: Education level can affect a person’s credit score
Fact: This is a really funny myth. Education level is not part of a credit report, so it has no bearing on credit scores. Information on credit reports pertains only to debt-related information. Therefore, loans, credit cards and payment history will be reported, as well as bankruptcy, tax liens (debt owed to the government) and civil judgments (debt owed through the courts) but information about income, investments or assets such as stocks or bonds will not be included. Additionally, under the Equal Credit Opportunity Act, a creditor’s scoring system may not use race, gender, marital status, national origin or religion as prevailing factors.
As I’ve stated earlier, rebuilding credit score takes time. You may not feel the positive results instantly, but with time and discipline, you’ll most likely achieve it. Of course, there are ways on how you can improve your credit score:
Leave the good payment records
You may not believe it, but good records from your past debts can boost your credit score. It’s really too long the wait for bad records to be deleted into your credit score, roughly around a seven year period. Good old debts that have been handled well and paid on time are impressive points on your credit score. Thus, making them stick to your credit records as much as possible will be a plus to your financial reputation.
Pay Bills on Time
I know that with this fast-paced lifestyle, most of you are juggling your monthly dues and there will come a time that you’ll be unable to pay one or two of them on time. This will result for your credit score to become lower.
Keep in mind that one main factor of maintaining a high credit score is on-time payments–month after month, and no excuses. One false move and you’ll end up fixing your score for the years to come. So, as much as possible pay your bills on time.
One good idea for payment convenience is make one payment just before the statement closing date and second one right before the due date. The first will likely reduce the balance that the credit bureaus see and the second makes sure you won’t pay interest or a late fee.
Don’t close down active credit cards
We all know that having too many credit cards is a bad idea, but when it comes in improving your credit score, closing your credit card accounts may not look good to credit bureaus. You may maintain your credit card accounts, but use them sparingly or only during emergency.
Raise your Credit Limit
Ideally, the higher your credit limit, the better you look with credit bureaus. Ask your creditors to increase your credit limit, but be careful not to change your spending habits. Of course, raising your credit limit also increases the temptation of spending more, just be mindful that your main objective is boosting your credit score and nothing else.
Seek Professional Help
When it comes to improving your credit score, it’s advisable to seek the advice of professional. There are reputable credit repair companies that conduct free consultation to those who want to increase their credit scores.
Fortunately, we, at Financial Rescue have partnered with credit repair professionals to help you improve your credit score. Aside from our debt settlement programs that help you with your debts, we extend our helping hands further to help you rebuild your financial reputation. Call our hotline now to avail of the free credit repair consultation.