By Briana Stewart, utahvalley360.com
Find out what the credit bureaus are saying about you behind your financial back.
What’s in a number? Well, when it comes to credit scores, actually quite a bit.
The three-digit figure, typically used to help secure a loan and lower interest rates, has become the go-to factor for financial evaluation. Employers, landlords and insurance agents alike are now using customers’ credit scores to determine if individuals are “worth the risk.”
Which leaves you, the customer, with an important to-do list: First, obtain your credit score; second, learn what it means; and third, calculate ways to improve it. Here are a few hints to get your credit score rolling and ultimately rising.
With regard to your credit score, ignorance isn’t bliss — even though a 2005 survey revealed that passivity seems to be the method of choice. In the study conducted by The Consumer Federation of America and Fair Isaac Corporation, 49 percent of polled consumers failed to understand that credit scores measure credit risk. Your goal? Be a part of the other 51 percent.
The first step is acquiring your personal credit report and score. You can order both from each of the three credit bureaus (Equifax, Experian and
TransUnion) or from AnnualCreditReport.com, a bureau-approved, centralized service. The report is free once every 12 months, and the score is available at an affordable price (around $6). But the true value comes from knowing your credit history and getting a financial snapshot of where you stand.
Your financial picture won’t be in focus until you understand the lens.
“Education is important,” says Brad Norton, vice president of marketing/business development at Utah Community Credit Union. “If people take the opportunity to understand how credit history works, they’ll be better off in the long run.”
To help you get to the long run, here are some basics: A credit score is a quantified reflection of your credit history. It calculates factors from payment history to amounts owed, and its main purpose is to help lenders determine your level of credit risk. Scores generally range from 300 to 850, with 700 and higher considered a good, solid score.
But there isn’t one magic number. You actually have three credit scores – one from each of the credit bureaus. Although don’t worry too much about varying results – all three bureaus use a form of Fair Isaac Corporation’s “FICO,” the most widely used credit score formula (see sidebar).
In your credit report, you’ll receive a summary of your history. It details the types of credit accounts you have, inquiries made by outside parties as well as public record and collection items. It’s also where you’ll be able to detect any errors.
The best feature of your credit score is its versatility. Low scores can get higher and good scores can get better. All you need is direction, diligence and duration.
“The best way to get a good credit score is to use good money management skills and let the credit score take care of itself,” says Jeff Meyers, assistant vice president of consumer lending at Utah Community Credit Union.
You can start by making timely payments on your bills.
The majority of your score is based on your payment history, and late payments and collections will have a negative impact. The longer you pay on time, the better your score will be.
Another tip is to keep a low balance on your credit cards. It is better to owe small amounts on multiple accounts rather than a large amount on one account. So be wary of maxing out your credit cards.
“If you are living on the edge, your credit score will reflect that,” Brad says.
It’s also important not to make rash decisions on your accounts, which includes closing unused credit cards, opening multiple accounts too quickly or shopping around for enticing interest rates.
“Chasing the zero percent interest rate is a dangerous game,” Brad says. “The offers are always there, but the zero percent interest doesn’t mean you can afford things. You just need to have discipline.”
Another factor to be aware of is inquiries. Inquiries are made any time you apply for a credit card or loan, and they can have a negative impact on your score. They are usually referred to as “hard inquiries,” but you should note that “soft inquiries” – or your personal queries into your credit – don’t affect your score.
While there are a variety of ways to manipulate your credit score, the most important strategy is to have the discipline to control your finances.
“People shouldn’t worry about their score as much as their history,” Jeff says. “Their history makes the score, but the history is something we can control.”
I reluctantly admit I wrote this story with zero knowledge of my credit history, which means that I was guilty of being in the – how did I put it – “ignorant” 49 percent of consumers. (Ouch!)
But all that changed with a small bout of insomnia. Staring at the ceiling inspired me to practice what I’ve preached and get “credit educated.” Eleven minutes and $5.95 later, I had my report and score in hand. I don’t know what I was expecting, but leaving my ignorant state wasn’t as scary as I imagined. In fact, it was empowering … and easy! (Note to self: Test article tips more often.)
So give me some credit – my insomnia turned out to be quite productive.
5 benefits to having a good score
* Get loans faster
* Credit decisions are fairer
* Credit “mistakes” count for less
* More credit is available
* Credit rates are lower overall
POINT OF REFERENCE
5 quick tips to a high score
* Pay your bills on time
* Keep balances low on your credit cards
* Don’t close unused credit cards
* Don’t open too many new accounts too rapidly
* Have credit cards, but manage them responsibly