three major credit reporting bureaus in the United States now.
There’s Equifax, Experian, and TransUnion
that as of May 2023, Transunion’s market cap was approximately $25.7 billion
FICO stands for the Fair Isaac Corporation
the credit scores or the FICO scores range from 300 to 850, and the higher your credit score, the better.
Typical is usually around 670 to 739.
This is considered good.
Many mortgage lenders look at anybody over 700
if you’re over 800
You’re in a positive area for ‘credit worthiness.’
you’re dependable, you have income coming in, you pay your bills on time
a high score means that you’re seen as less of a risk, so you may qualify for better interest rates and loan terms, and it also may affect your ability to get approved for car loans, credit cards, a lease on an apartment, a mortgage, and even a job because a job will also run your credit report.
more than a 1/3 of it is made-up by the payment history.
It measures the consistency with which you have met your credit obligations with late or missed payments having a negative impact on your score
30% consists of how much you have outstanding
it considers your outstanding balances and how much of your available credit you’re utilizing.
The lower utilization rate is generally viewed more favorably by lenders.
the length of your credit history— that makes up another 15%.
the length of time you have been actively using credit as a longer credit history can generally indicate a greater stability and financial responsibility.
new credit
That makes up the smallest component of the FICO score, which makes up just 10%.
this metric looks at the number of recently opened credit accounts on your credit report, as applying for too much credit in a short period may suggest a higher level of financial risk.
If you need money and you go looking for it, you’re perceived to be of higher risk.
If you don’t need money because you’re cash rich, everybody wants to lend to you.
the credit mix, that’s another 10%.
this aspect assesses the diversity of the credit accounts on your credit report, so this would include credit cards, loans, mortgages as having a mix of different types of accounts which can be viewed very positively by lenders as well.
build credit
One of the biggest ways is to have a steady income
the lenders will verify this.
be responsible with your credit usage.
You might consider getting a secured credit card.
What that is, is it requires a deposit.
So, let’s say you put in $500, this can help you establish a credit history.
Do not overspend.
Pay your bills on time and if possible, in full each month.
I couldn’t get credit.
I had the cash
if somebody had hit me across the head and said, ‘get a secured loan for this, it will help you build credit,’ that would have helped me so much in the forthcoming years when it came time to find a mortgage lender.
in terms of financial planning and trying to build and establish a credit history, how much credit should you use and how much is too much?
30% or less.
You don’t want to use too much of your credit because it can hurt your credit score
you’re only supposed to really use 30% or less.
one common mistake is applying for too much credit at once.
You look desperate for credit, and that hurts your score.
Another mistake is just missing payments.
you pay late, which can have a major negative impact on your credit score.
make sure you’re able to make your payments on time
it’s knowing how much money is coming in and how much money is going out.
use the tools of the modern age, like automatic payments
a good credit score takes a bit of time.
Usually, at least a few months to a year or more, so it’s important that you want to build credit, if possible, as early as you can
Don’t keep looking for your scores.
Just focus on using credit responsibly.
If you make your payments, your score should gradually improve with time.
you can check your credit score for free online or through your bank, credit card company, or other credit apps.
it’s recommended that you check your credit report at least once a year, and more often if you’re actively trying to build your credit.
So, you can get your free credit report from each of the three major credit bureaus.
That’s Equifax, Experian, and TransUnion.
And once a year, by going to annualcreditreport.com.
this is the only site that is authorized by the Federal government, the U.S. Federal government to provide free credit reports.
You can also get a free credit report from some credit card companies or other lenders, but these may not be as comprehensive as the reports you get from credit bureaus.
Now, there’s also an app called Credit Karma, and there might be others as well, which offers a variety of services, including free credit reports and credit scores from TransUnion and Equifax.
This company was acquired by Intuit, the parent company of TurboTax and QuickBooks, in 2020.
There’s also a profusion of other apps, such as Credit Sesame, Wallet Hub, Nerd wallet, Mint and more.
does over-checking your credit score make it go down?
yes and no
the difference lies between the soft inquiries and the hard inquiries.
Soft inquiries can include employment applications, pre-approved credit card, loan offers, or when you check your own credit report.
it’s like you’re poking at it or somebody else’s
hard inquiries are when a lender requests your credit report information in connection with the credit application.
you’re applying for a mortgage or you’re getting a car loan, another credit card, a store credit card, and hard inquiries can have a small negative impact on your credit score because statistics have shown that the people applying for new credit tend to be riskier than those who do not
If you want money, you’re a riskier person
don’t use your cash
the impact of hard inquiries begin to fade after the first 12 months and then will be dropped from your credit report after 24 months.
when you’re trying to borrow money, you’re looking for money
rate shopping
It’s common to take time to search for your best interest rate before taking out a new loan, and it’s likely that several lenders will check your score around that same time
rate shopping shows financial responsibility, not higher risk of financial distress; and therefore, credit scoring models consider multiple inquiries within a short period of time, as just one inquiry.
a short period of time might be 14 days in this case if you’re looking for a car
if you don’t pay for a loan, that harms your credit rating.
What are some of the penalties for non-payment on a loan?
for federal student loans, for example, the IRS can garnish wages, which means they can actually extract money from your paycheck
They just go straight to your employer, and they take it.
there’s nothing you can do.
redit lines can’t be extended if your debt burden reaches certain thresholds and the APR on your monthly credit card payments can soar if you’re late or miss a payment.
if you don’t make a payment on your car loan, your car can get repossessed.
this is nowadays a very well automated process.
if you find an error on your credit report, you should dispute it with the Credit Bureau.
contact the Credit Bureau in writing, either through a letter or through their website, and provide documentation
the Credit Bureau will investigate the dispute and if they find the information is inaccurate, they will remove it from your report.
let’s say, you checked your credit report, noticed a charge for $200 from a store you never shopped at.
You decide to dispute it with the Credit Bureau, so you write a letter to the Bureau explaining the situation and provide any evidence you have.
Now, this could be receipts or bank statements that show you were somewhere else at the time of the purchase.
Use a highlighter and circle the discrepancy.
State clearly that you want the information corrected or removed and then send that letter in certified mail and keep the receipt.
Then save this information, put it away in a safe place; make sure you have your own copy.
The Credit Bureau must investigate the dispute.
If they determine that the charge was indeed fraudulent, they’ll remove it from your report, which will improve your credit score
Other potential errors can include closed accounts that are reported as open, accounts belonging to another person with the same or similar name as you and accounts with incorrect current balance or credit limit or incorrect accounts resulting from identity theft.
Whenever you apply for credit, one of the things that’s absolutely necessary is to input your Social Security number.
don’t give out your Social Security number to anybody.
Don’t let anybody else see it.
What happens is somebody gets hold of your Social Security number and you become a victim of identity theft.
And as you were just saying, Mary, some rogue activity on your credit report could be as a result of somebody getting hold of personal information that you really wouldn’t want shared.
Criminals attempt to use your identity to apply for loans, and that one thing that they really need is that Social Security number.
Just don’t give it out. If you see inquiries on your credit report that you don’t recognize, it can indicate a larger problem than a simple reporting error could easily be a sign of fraud or identity theft.
that is very important and highly revealing.