Some people are so suspicious of credit that they advise giving up credit cards and living on a cash-only basis. They acknowledge that most people need mortgages and auto loans, but they feel the best way to impress a lender is by living a credit-free life.
The credit-scoring formula is designed to judge how well you handle credit over time. If you have no credit, or you don’t at least occasionally use the credit you have, the formula won’t have enough information to make an assessment. You don’t have to live in debt to get a decent score, but you do need to use credit. Read the rest of this entry »
No amount of exclamation points makes it so, Lisa. Next to the myth about closing accounts, the myth that you can hurt your score just by checking your credit report seems to be the most pervasive-and potentially destructive.
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Rapid rescoring services came about because too many people were losing loans or paying too much interest because of credit bureau inaccuracies. Before you get excited, though, you should learn what these services can and can’t do:
• They can’t deal with you directly as a consumer-Rapid rescoring is typically offered by small credit-reporting agencies, which serve as a kind of middleman between the bureaus and the lending professionals.
These agencies, which are often independent but which might be subsidiaries of credit bureaus, provide special services for loan officers and mortgage brokers such as merged or “3-in-1″ credit reports. To benefit from rapid rescoring, you need to be working with a loan officer or mortgage broker who subscribes to an agency that offers the service.
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It will never be easier for you to get an unsecured credit card than while you’re in school. Lenders are much more lenient about extending credit during the college years, because they know your parents are likely to pay your bills if you can’t and that parental support typically ends with graduation. Read the rest of this entry »
Legally, you owe a debt until it’s paid, settled, or wiped out in bankruptcy. Some people erroneously believe that their obligation ends when a creditor charges off the debt. But a charge-off is essentially just an accounting term. The creditor can continue trying to collect or sell the debt to a collection agency, which can try to get you to pay. Your obligation to pay doesn’t end when an unpaid debt falls off your credit report after seven years. The creditor might not be allowed to report the account, but collection actions can continue. Similarly, your state’s statutes of limitations define how long a creditor or collection agency can take you to court over a debt. Read the rest of this entry »
Responsible credit users don’t apply for credit they don’t need. They also try to pace their credit requests, so that they’re not opening a bunch of accounts in a short period of time.
Although your first few credit accounts serve to build and improve your credit history, there typically comes a point when each subsequent credit application can reduce your score. Where that point is, no one knows for sure; all Fair Isaac will say is that it depends on the other information in your file. Read the rest of this entry »
If your goal is to improve your credit score, don’t close any of your current accounts. Closing credit cards and other revolving accounts can never help your score, and it might actually hurt it. Shutting down accounts reduces your total available credit, and that makes your balances loom larger. That narrowing of the gap between the credit you’re using and the total credit available to you is one of the things that can hurt your score. Read the rest of this entry »
This one is a variation on the idea that reducing your available credit somehow helps your score by making you seem less risky to lenders. Once again, it’s off the mark. Narrowing the gap between the credit you use and the credit you have available to you can have a negative effect on your score. It doesn’t matter that you asked for the reduction; the FICO formula doesn’t distinguish between lower limits that you requested and lower limits imposed by a creditor. All it sees is less space between your balances and your limits, and that’s not good.
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It is difficult to judge exactly how much an action is going to affect your FICO score and it will vary among different people with different credit profiles. Not one piece of information or factor alone in your credit report will determine your score. Your FICO score only looks at information in your credit report. However, lenders look at many things when making a decision including; income, employment history, etc.
We are able to sort the data within a person’s credit profile into five categories; Payment History, Amounts owed, Length of Credit History, New Credit and Types of Credit used. The percenteges in the image below pertain to the general population. For some groups, such as people who have not been using credit long, the importance of these categories will vary. Read the rest of this entry »
In simpler terms, a FICO score is simply your credit score. FICO stands for Fair Isaac Corporation which was founded in 1956. They developed the FICO score, which is a measure of credit risk. The Fico score is calculated statistically with information within a consumer’s credit file. FICO scores are used primarily in credit decisions by banks and other providers of credit. Banks may offer better interest rates on loans, mortgages or other financial instruments to those consumers who have a higher Fico score. Consumers with a low FICO score may be denied credit, charged higher interest rates, or require extensive income and asset verification.