Feb. 3, 2013

Credit Scores - More Than Just A Number

Protect your Credit Score, It's more then just a number!

Lenders use different credit scores for different purchases.

When you're in the market to find out your credit score, beware.  The score you receive may not be the score a lender receives.  Scores can differ depending on what kind of borrowing you're doing whether it be from purchasing a home to buying a car or even getting a credit card.

Under the Fair Credit Reporting Act that took effect January 1st of this year, lenders must either tell those who apply for credit what score was used, or tell the applicant how it was used if they didn't receive the best terms available.

Here are some reasons why a credit score may not tell you how a lender evaluates you:

Credit scores are not a total reflection of whether you are making good financial decisions or poor ones.

If you refinance your home at a lower interest rate, inquiries could show up on your report. Inquiries lower a score.  Be it mortgage related or not, be sure to ask if someone is doing a "soft credit pull or check" or a regular one.  A soft check does not provide a whole credit report and will not affect your credit.  However, having several hard credit checks where your report is actually pulled, can lower your credit score because it appears you're out looking for credit wherever you can get it.

Rather than checking your credit score often, it's better to ensure that the information on your report is correct.  Make your payments on time and reduce monthly balances for a month or two before applying for a loan or mortgage.

The rates lenders give may vary.  Some give the best rates to people with a score of 700 while others may use 750 or higher.  What used to be the standard acceptable score of 620, has changed recently and now some lenders are considering scores in the low 500's.

If you pay your credit card bill in full every month, you don’t get a zero balance on your credit report.  The report shows the balance at the end of the billing period, before the payment is posted. 

Late payments can show up on your score for years.  However, paying down a high balance has an immediately positive impact on your credit.

Check your report for mistakes.  If you have a similar name as someone else, you may have their credit on your report!  I've seen this often enough for it be a concern.  Especially if you're a "Jr." or "Sr." or carry on a family name.  Unfortunately, sometimes it can be a family member whose poor credit is inadvertently affecting your own.

Finally, make sure that when you pay off a bill, you follow up with the credit agencies to ensure the payoff gets posted in a timely manner.  Often, creditors can take a long time doing this and that isn't helping you, even though you paid off your bill.  And always remember, paying off revolving debt first is beneficial.  Paying off small interest student loans for example, doesn't have nearly the impact of paying of a credit card.  The loan gets smaller as you pay it.  The credit card simply allows you more available credit!

Be sure to check your credit report regularly.  As you can see, there are many reasons to check it on a regular basis and know just what is actually showing on your credit and how lenders are viewing it.

Author:

Michelle Trimmell, RA, MBA

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