credit score

Building A Good Credit Score

October 8, 2016 By Twila Van Leer

Use card responsibly and pay each month's bill on time. — Use card responsibly and pay each month’s bill on time.

Building a good credit score doesn’t happen overnight. There are steps you can take to assure good credit from the outset and establish yourself on a positive note. They include:

Credit Reports

Check to see if you have a credit report. You could have established credit without being aware of it. For instance, if you have been authorized to use a family member’s credit, you might have a credit report. It is also possible that you have been a victim of identity theft, and that definitely needs to be cleared up before you start building credit in earnest. WalletHub is one site that offers credit reports and scores that are updated daily. If you find a report under your Social Security number, analyze it and if necessary, dispute errors, fraudulent accounts and negative records related to unauthorized use.

Get A Credit Card

Starting with a clean slate, open a starting credit card. It is usually pretty easy. There are some that don’t charge an annual fee or require you to incur debt as loans do. They report to the major credit bureaus on a monthly basis.

Three options for a starter card include student credit cards, general use cards for people with limited credit and secured credit cards. You have to have an active college or university email address to get a student credit card. A secured card offers the best opportunity to get guaranteed approval without the risk of overspending. The alternative to a starter card is a loan, usually for home, car, student use or other need that requires debt with interest.

Use Your Credit Card For 6 Months

Use the card responsibly for at least six months. That will generate a credit report and score. The score could range from bad to well above average, depending on what you did with the card and how well you paid. This first report is critical, because it puts you under the credit score microscope. Mistakes will be magnified beyond what they would be if you were a seasoned credit user.

Pay Bills On Time

Pay each month’s bill on time and keep your utilization of the card below 30 percent – 10 percent for the best result. Never use all the credit they extend to you. Setting up automatic payments from a deposit account is helpful in meeting these standards. Responsible handling of the initial card will help when you are ready to apply for a higher credit limit.

Study Your Credit Report

When you have a sense of how your initial foray into credit card use went, continue to study your credit report regularly. By looking at all of the components of the report, you can gain a sense of how the system works and be prepared for long-term credit use. You can learn to adjust course if any element of your report seems out of sync.

A responsible journey into the world of credit can set you up for life in what is an important element in ongoing personal finance.

The Credit Elite Have Savvy Habits

June 23, 2016 By Twila Van Leer

Payment history most important factor used to determine overall score.

Ever yearned to be part of the “Credit Elite,” those whose credit ratings are up the 800-850 range as determined by the rating agencies? That kind of credit almost assures that you will be approved for loans and likely enjoy lower interest rates.

Those in the 800-plus range know that it doesn’t happen by chance. They make particular credit habits part of their regular personal finance strategies. Here are some of their suggestions:

Pay On Time

Without exception, pay on time. The payment history is the single most important factor that the agencies use to determine your overall score, being some 35 percent of the total. If you miss a payment or make one late, it has a negative effect.

Keep Balances Low Or Paid Off

Keep a rein on credit card balances. The size of the balance relative to the card limit is a factor. The best credit is generated by using less than 10 percent of the allowable limit.

Low Number of Credit Cards

Limit your credit accounts. Applying often for new credit can affect your bottom line. That activity represents 10 percent of the credit agency’s total. If you make frequent inquiries about new cards, for instance, trying to find the best mix of perks, it could have a negative effect. Try to get the right mix into place, then stand pat. A mix of debt, including credit cards, auto loans, mortgages, student loans, etc., all deftly managed, will impress the rating companies.

Don’t Spend More Than You Make

Live within your means. Overextending yourself financially will come home to roost. Don’t use credit to overspend. A solid, long-term credit history will keep your score in the range you want. The older your accounts become without serious lapses, the more they count. Stability is a factor when you’re looking at the 800 rankings.

Staying on course is important. Consistency is key to a good credit score. A small lapse can have a reverse effect. Make good credit a habit and stay on course. Check your credit score periodically and monitor your progress toward the elite standing.

Check Up On Your Personal Finance Planning

March 11, 2016 By Twila Van Leer

The Great Recession that plagued personal finances from 1993 to 2008 had a significant impact on the amount of money Americans were saving. Savings figures for the period were at the lowest levels in recent history.

But by May of 2009, the household savings rate had climbed to 6.9 percent, the highest level since 1993. It took a major financial jolt to get people back on the right track. The effect of the recession, coming on the heels of a period of high borrowing, was a disaster for many. Bankruptcy filings had nearly doubled by the end of 2008.
If you have lingering concerns about the state of your own finances, check your data against these indicators. Make adjustments if necessary.

5 Steps To Financial Health

Credit Scores

1. Check your credit score. In a range of 300 to 850, the higher your score, the better your financial health. Lenders use this score to determine if they want to do business with you. To get a credit score without cost, contact one of the three primary credit bureaus, TransUnion, Equifax or Experian. If your score is below 600, try to improve it by paying down debt, satisfying outstanding judgments or curb your use of credit cards.

Savings

2. If you are saving less than 5 percent of your income, it isn’t enough. In 1993, the rate, at 7 percent, was the highest it had been. Since then, too many earners began dipping into savings to see them through the recession, rather than adding to their savings cushion. The trend now is up and if you haven’t joined the savers, now is the time. Don’t look at it as an immediate thing, but as part of the retirement you hope to have. If your savings backup is niggardly, it may disappear entirely in the event of a medical emergency or any other of the many financial challenges that can bite when you aren’t prepared. Make savings of 10 percent of income a goal.

Credit Cards

3. You can be pretty sure you are in over your head if you carry credit card balances from month to month or if you are paying only a small amount to the principal. This is a major cause of financial stress for many people. Ideally, you use a credit card only in emergencies, or charge only what you can pay off in a month. Then you start whittling away at the total, paying whatever you can over the expected monthly payment. Only $5,000 in credit card debt requires a minimum $200 a month and can ultimately cost $8,000, taking up to 13 years to pay off.

Mortgages

4. If housing consumes more than 28 percent of your income, you are in trouble. Almost certainly you will have to cut back in other areas of your budget to handle that load. When the housing market was thriving, the mortgage lenders were allowing people to buy homes that absorbed up to 35 percent of their income, but with the country just coming out of the housing slump, they are edging back to the 28 percent figure. Give some serious thought to downsizing if possible.

Cut Back

5. If your non-housing bills are going crazy, you can assume you need to do something to restore balance. Succumbing to the temptation to buy items on time, you end up paying what seem to be relatively small amounts on a dozen or more products or services. Then relative small quickly becomes over-large and you’re suddenly in the category in which the required outgo is larger than the income. Assess your situation by putting all the bills on the table and seriously discussing them. Identify what you can trim or do without and then do without it. Just one for-instance: Do you really need a 500-channel cable TV package if you are using only a few of the channels? Do you really need a land line if you have cell phones? Etc. etc. etc. An honest look may help your family regain control of its resources without any really painful sacrifices.

Do what you can to avoid become part of the dismal foreclosure and bankruptcy statistics. Keep tabs on your finances and move toward a better distribution of what you have for the sake of the future as well as the present.

Millennials Benefit By Owning A Few Credit Cards

December 14, 2015 By Twila Van Leer

Who would ever guess that being without credit cards could be a problem? Too many people know the stress of having to make the payments that credit cards require, but not having any cards can create difficulties of another kind. Borrowing in the future may be hampered if you haven’t built a history of bill-paying.

The millennials who are now in their working years tend to take on fewer credit cards than did their older peers. But when you apply for a loan, for a car or house, say, the potential creditor will be looking for evidence that they can expect you will pay regularly and on time.

Avoid becoming part of the “credit invisible” group by looking ahead and planning when and how to use a credit card. Before 2009, when Congress passed the Credit Card Act, college students were sent offers from banks and other financial institutions for credit cards, usually with a glut of “goodies” to sweeten the deal. Under the act, persons under 21 must have a co-signer or be able to prove income to obtain a card.

The provisions had a dampening effect on applications for cards by young people. NerdWallet did a survey that determined 31 percent of those in the 19-34 age bracket had never applied for a card. Millennials, too, have been deluged with horror stories of the results of uncontrolled debt and may be more wary of taking on cards than those who preceded them. Those born at the turn of the century were becoming job-eligible after a serious recession had turned the country’s economy topsy-turvy. The increasing costs of student loans also have had an effect on the overall financial thinking of the millennials.

But the reality comes home to roost when credit is a sensible part of personal finances. Not being able to get loans – or even to set up a cellphone plan – brings the role of credit into stark reality. Sometimes, even a large down payment on a big-ticket item may not offset the creditor’s inability to verify a customer’s credit standing.

Delaying too long also may complicate your ability to obtain a card when you want one. A disproportionate number of those in the millennial age group were denied credit cards on their first application, according to Fair Isaac Corp. research. Because they haven’t built a credit record, they end up with low scores, the average being 628 – not enough to impress the card issuers. Banks often require a good to excellent rating to issue a card. Being denied a card multiplies the problems, as the denial becomes part of the credit rating.

Being persuaded to apply for a card because of the flashy perks such as cash-back rewards, airline miles, etc., may look good at first glance, but the institutions that offer such incentives often charge more interest, or even an annual fee. Don’t jump too fast.

Piggy-backing, or adding your name to the card owned by a parent or other relative may be an option. But be certain that the individual has a good credit rating, or it may ultimately affect your own rating. Likewise, you are more likely to have your feet held to the fire so that your lapses in payment don’t affect the card owner’s credit.

A secured card may be the answer for your first-time foray into credit. These cards require money in a security deposit account as collateral. Income and ability to pay also must be proved. This type of card helps to build a credit history that may lead to other cards after time. Prepaid cards do not build a credit record, simply tapping into deposited funds.

Consider the options and go for the one that fits your needs. But some sort of credit card will ultimately work to your benefit as you get into the serious business of life as an adult.

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How To Get A Good Credit Score

March 10, 2015 By Twila Van Leer

Want to be the kind of consumer the creditors want? The kind that they bend over backwards to accommodate? The sort that breezes through a loan process with nary a wrinkle? It can be done.

At the crux of it all is your credit report. That’s the elusive data collected by credit reporting agencies that only surfaces when your finances are being discussed, usually with large ticket purchases in mind –things such as houses and cars.

The reporting agencies use a system known as FICO to create an individual credit profile, an acronym derived from the name of the California company that developed the method. Scores range from 300 (Don’t even ask for credit) to 800 (You’re a shoe-in.) Though there are critics who say the factors used to create a credit report are not the only ones that should be considered, the reports are a fact of credit life today. Thirty-five percent of the rating is based on payment history; 30 percent on amounts owed; 15 percent on the length of credit history; 10 percent on new credit and 10 percent on types of credit.

Things you can do to improve your credit rating:

1. Make payments on time. If you begin making payments late or, worse, missing them, the resultant penalties and fees will be factored into your credit report.

2. Don’t use a credit card that charges an annual fee. Shop around until you find a card that doesn’t charge fees and still offers rewards. That general rule might be set aside if you find a card with a fee that is counterbalanced with low interest, generous benefits and other features that cancel the effect of the fee. A word of caution: constantly shopping for a “better” credit card may build a perception that you are having trouble managing debt. It all goes into the record. Sticking with a particular card for a long time shows financial stability.

3. Never max out your credit availability. Using less than 30 percent of the credit for which you qualify is good practice. Utilizing several lines of credit, such as mortgage, car payments, etc., as well as credit cards, also helps the score, as long as you conform to the agreed-upon terms.

4. Monitor your credit rating. Credit reporting services are required to furnish a report to you annually. Some banks now are providing this service to customers, overturning earlier practices that made procuring the information difficult. If you find questionable information in your report, act immediately to correct it.

Critics of the current method of creating credit reports argue that it overlooks some very important factors. For instance, it does not make allowances for people who simply don’t use credit. That means it discriminates against the potentially best customers, the so-called “credit invisibles.”

Regardless of the perceived flaws, it is the system now in use, and if you are credit-wise you can do things to improve your rating, whether or not you are a big user of credit.