Credit Scores- these are the dreaded three numbers that are going to determine whether or not you get approved for a loan and also the terms of that loan. First and foremost, there is a serious problem here in our country, and that problem is that not everyone knows how to check their credit scores. Federal law allows consumers to check their credit reports once every 12 months without damaging their scores. The only website that you should ever use to check you credit scores is www.annualcreditreport.com, this website will take you directly to the three independent bureaus, where you can check your score. This website can be found on the Federal Trade Commisions website, and in my perspective it is the only legit website who will not sell your information as leads.
Credit scores have a range between 300-850. 300 means you cant rent a movie at Blockbuster and 850 means you could finance a Ferrari with zero down for 144 months.
These credit scores and calculated based on a couple of different factors. For example
Payment History 35%- most important category is paying everything on time-
Debt Level 30%- don’t use all off your credit- Always stay below the 35% mark
Length or credit history 15%- build a strong history- you have to be dedicated
Inquiries 10%- avoid making to many inquiries- keep copies of report- remember 1 free report a year
Mix of Credit 10%- Mix it up- credit card, car, house- How hard can that be!
Tips & Advice that I want to cover:
1. Many consumer have the misconception that shopping around is going to affect their credit scores negatively but this is not completely true. The three consumer reporting companies actually allow a certain time interval for an individual to shop around as long as they are shopping around for one item. For example, If you a ready to make the big decision to buy a house, the credit reporting agencies understand that this is an important decision in your life, and that shopping around among mortgage brokers or mortgage banks is necessary. Therefore they understand the need to shop rates and give you a grace period.
There are two different versions for rate shopping the older one is a 14 day span and the newer one is a 45 day span. To be safe use a 7 day time frame to shop around for the best rate, and if you need more time, be creative, pull your credit report, print it out, and send it to the lender or broker, so they can pre qualify you. Once you approve the estimate, they can now lock your rate, and pull credit.
Now if you decide to stop at a furniture store and pull credit, then a car dealer, then at your local bank, you will not receive the benefits of the time frame stated above, instead the bureaus will report many inquiries and suspect that your trying to get any credit that you can.
2. In my opinion nothing looks worse on a credit report than a small missed payment. Example- you have a mortgage payment of $3000, car payment $600, and a Macy’s card for $50.
Why in the world would you miss the $50 payment- This is a big red flag to bankers because it looks like you couldn’t afford the minimum payment on your Macy’s card, but you paid the Mortgage and the car on time. This will really impact your credit score and it might prevent you from getting a new loan. Most of the time credit cards wont report a late until it is 30 days late so make sure to pay at least the minimum.
3. I cant stress this enough- use your free credit report every year, so that you are informed on your balances, inquiries, payment history, and whether or not there is suspicious activities going on with your credit. I should have put this as numbers one.
4. Another very important tip is to use the bureaus to freeze your account when there suspicious activity found (chances are you will find these mistakes or erros by checking your report). Identity theft had become one of the fatest white collar crimes in this decade and you have to protect yourself and also know how to fix the problem. There are many reputable companies that monitor and guard your credit ( such as lifelock). These companies have the responsibility to prevent thieves from stealing your identity. Its a cheap service that is highly recommended. One can use the bureaus to freeze the account ( this will work exactly like the companies mentioned above). If I am too late, and your are a victim of this, use fraud alert provided by the bureaus because it will let the lenders know that your identity is stolen. I have yet to find companies that work with victims of identity theft to recover their identity but an experienced lawyer can help.
5. One of the easiest and fatets way of building your credit scores is by becoming an authorized user on a family memebers card with good credit scores. This is probably the fastest way to build solid credit and it will give you instant history. Now for the person giving a helping hand, be smart, you can help a family member by putting them as authorized users, but you don’t have to give them a card. This way your helping someone build credit and your still in control of the account.
6. Again lets look at the formula, Payment history 35% and debt Level 30%. For some reason people dont understand what that means. This means that your credit score is mostly made up from your payment history and how much debt you have compared to limit ( for example your card has a limit of $1000 and you owe 300- that means you’re using 30% of your limit)
30% is our guide. You should not exceed 30% of your balance. As soon as you exceed the 30% mark you are considered a risky borrower because of the increased risk associated with you not paying.
Lets look at this way if you open a credit card today and get a limit of 100 dollars, all you would have to do is stay under the 30% balance mark, and pay that bill on time for 6 months and your credit scores will have a good rating.
That’s the bread and butter of your score, after you have that foundation you can start getting fancy and getting more loans, and increasing their limits.
7. As a young college student its very easy to abuse credit (especially when they send you cards in the mail all the time) but abusing credit will lead to a life of debt and stress. It is my opinion that all of us in this great country need to start focusing on whats important ( health, education, family, love, etc) and not keeping up with the Joneses. Trust me I know this is easier said than done. But the lesson here is to use your credit as a tool to help you with those important purchases in life or with emergencies. Don’t use your credit to buy the latest Gucci bag or to take your fraternity out for drinks! Leverage is very important to use and it can make you rich or make you stand in line for food stamps but your credit scores will forever affect your life- take it seriously!
8. Don’t get too caught up in the numbers- Lenders look for other requirements as well- income- job-income-equity-assets- Full Doc SO if your score is low make sure you max out your 401k, or use some money to lower your debt ratio!
9. My personal suggestion is to keep credit separate from your wife. This is not a cheap way to have a prenuptial agreement but instead a smart tool for both. If your credits are separate it can act as a hedge against future problems. For example lets say that the house is under your wife’s name, but you are on the deed. Lets say your wife looses her job and as a consequence you will not be able to make the monthly mortgage payment on time. Under my guidance, this would not be the end of the world because of the fact that your wife is the only one on the mortgage( and because you paid late that month, her credit scores will drop), but your scores wont be affected. In this case, you might be able to obtain a payday advance loan and cover that late mortgage to get caught up and not have any more late fees- SO in most cases it will give you greater flexibility and safety. In addition if each partner has their own credit, income, and assets, each person can have a house or two under their name (without being considered an investment property), take student loans out for the kids separately, and even finance a boat if desired.
10. Last but not least, the bureaus have a system set in place for consumer to dispute accounts. If you happen to pull your credit report and see accounts that are paid in full or have errors you will need to dispute it to the bureau. This is done in the form of a letter and please make sure to include as much information as possible ( like name, account number, any proof of payment,etc). Send the letter through certified mail so you have proof that it was sent. The credit bureau has 30 days to investigate your dispute and respond to you, in writing, with the results of the investigation. This is a painless way of boosting your credit scores!
Dispute Addresses for the Three Major Credit Reporting Agencies
Equifax
Box 7404256
Atlanta, GA 30374
Experian
P.O. Box 2002
Allen, TX 75013
TransUnion
P.O. Box 390
Springfield, PA 19064
This was my first Blog Ever, and I hope it serves as a guide, to make changes in peoples lives.
Pablo Galante 11-3-08
