Extra Credit

So, what’s going on with your credit?
How do you know if your credit is safe?
What about your identity?
These days, it’s all too easy to get hacked, and in so many ways. 
Credit may seem daunting, but let’s make it simple. 
And once you understand it, you can take control.
Now, that’s a good feeling.

First, let’s understand three important things about credit: 
  • Credit Report:  This is a report of your credit history – both good and bad - which serves to inform lenders of your creditworthiness.  Credit reports come from consumer reporting agencies (companies which gather and sell credit information).  Your credit score is derived from your credit report. 
  • Credit Score:  It’s an overall score of everything credit-related about you.  It covers your borrowing, charging, and repayment activities.  Pay that cell phone bill late?  It may be on there.  Close an account?  It’s on there.  As for the score…the higher the better.  How high?  Generally, scores over 740 are considered excellent.  Most credit scores fall between 600 and 750.  If your score is in the mid to upper 600s, you should consider working to get it higher, but you’re not doing too bad.  620 is often considered the cut-off point for lower interest rates.  Scores below 600 indicate a relatively high risk level for the lender and you will most likely be subjected to high interest rates or denial.  The highest score one can achieve is said to be 850.  I doubt if anyone knows for sure.
  • Credit Agencies:  There are three credit agencies:  Equifax, Trans Union, and Experian.  They all keep information on you, and most often, their information isn’t exactly identical.  It’s important to know what information each has on you, so you know nothing is in error.  Often, a lender will only use one credit agency when determining your eligibility for a loan. 
What is on your credit report? 
  • Personal information:  your name, address, birth date, social security number, etc.
  • Credit information:  accounts with banks, retailers, credit-card issuers, utility companys, and other lenders.
  • Public Record Information:  bankruptcy information, tax liens, or monetary judgements.
  • Recent Inquires:  identifies those who have checked your credit report within the past year.
What makes up the score?
  • Payment history:  Whether or not you pay your bills on time.
  • Debt:  How much debt you have currently.
  • Age of accounts:  How long your credit history is.
  • Types of credit:  the variety of accounts you have.
How long will it stay on there?
Seven years.  Bankruptcy remains for 10 years.

How can I improve my score?  That’s a great question.
  • Start at the bottom of the ladder and climb up slowly.  Life’s never as simple or easy as we’d like it to be, and bad credit can happen to good people.  But you can improve your credit slowly. 
  • Pay bills on time.  Automatic payments, smartphone reminders, online banking – take advantage of today’s technology to help make life easier.  Most people know they must pay their credit card bills on time, but they often overlook the smaller bills like their cell phone, gas company, water bill, etc.  Those count, too.
  • Keep your credit limit high and your balances low.  This not only affects each card individually, but all of your debt.  It is a good idea to only owe 25% of what your overall credit limit is.
  • Don’t close old unused cards.  That old Visa in your desk drawer that you never use may be doing your credit history a great deal of good.  Credit reports take into account how long you’ve had credit history.  So, even if you have a department store account card since you were sixteen, don’t close it.  If you don’t want to use it, just cut the actual card up and throw it away.
  • Don’t open new accounts just for a one-time discount or for a better interest rate.  This one’s kind of a no-brainer.  Having too many accounts is just bad
  • Don’t have too many accounts of the same kind.  Do have accounts of different kinds.  While it’s not good to have ten credit cards (Visa, MasterCard, etc.), it is good to have different types of credit – credit cards, department store cards, an auto loan, a home mortgage.  Having too many of one or missing one or two types can work against you.
  • Try a secured credit card.  Credit cards are needed to do all sorts of things, even if you plan to pay cash.  If you think your credit is too bad to get a credit card, consider a “secured credit card”.  This is a credit card which requires a cash collateral deposit that becomes the credit line for that account.  For example, if you put $500 in when you open the account, you can charge up to $500.  Over time, paying your bills to this card will improve your score, and you will begin to notice regular credit card offers appearing in the mail.
  • Are you an impulse buyer?  Your freezer is your new best friend.  For this trick you will need a large gallon freezer bag, some water, and your credit card.  Put the card in the bag, fill it with water, zip it up, and put it in the back of your freezer.  From now on, any time you try to buy anything on impulse, you’ll have to take the time to thaw out the card first.  That should give you ample time to determine if you really need that fourth Snuggie.  Tip:  Don’t write down the credit card number anywhere, that’s cheating.  Extra Tip:  Don’t thaw out the card in the microwave.
  • Only charge it if you have the cash to pay for it.  This is a good mantra, and I stick by it.  Amazon is great – but you have to use that credit card.  Credit card companies offer benefits and insurances which cover purchases made by the card.  You feel safer carrying less money.  There’s lots of reasons to use a credit card.  But it’s best to try to pay your balance off in full each month if you can.  Not only will you be building your credit (provided you pay the bill on time each month), but you’ll be saving on interest fees too.
  • Soft vs. hard inquiries.  Credit inquiries DO go on your credit report.  Inquires like ordering a credit report for your own use usually don’t affect the score.  Don’t do it more than once a year, though.  Similar inquiries from existing lenders, potential employers, or solicitors also don’t affect the score.  The inquiries which affect your score come from lenders to whom you give your social security number along with authorization to check your credit.  Multiple inquiries from auto, home, or student loans (aka rate shopping) usually occur within a short time period and are typically treated as a single inquiry.  They will have little impact on your score.
Ok, now, how to take control.  Errors in credit reports DO happen.  Even the smallest error could cause a big problem.
  • Review your credit report and score:  It’s best to check your credit score and view your credit report once a year.  Under the Fair and Accurate Credit Transactions (FACT) Act, you’re entitled to a free look at your credit report once a year.  Organized by the three credit reporting agencies, you can get it at AnnualCreditReport.com.  Make sure that not only things like your name, address, employer, etc., are correct, but that any and all activity in your report was in fact done by you, and not someone else.  What if you find an error?  Call the place who reported it (store, lender, credit agency immediately.  They are then responsible for investigating the issue.  You can also write a brief statement clarifying the inaccuracy to the credit bureau to attach to your credit file.
  • Communicate and negotiate:  You fell and broke your leg.  You either don’t have insurance or your insurance is pretty thin.  You end up owing a lot of money.  Don’t stress, there is a way.  Call the responsible party of each bill and explain to them that you don’t have the full amount but you can pay $XX each and every month and will continue to do so until the debt is paid off.  This happened to me in college.  I think I paid $25 on four bills every month for two years, but they were fine with that as long as I paid on time.
  • Pay someone to watch it for you.  There are companies which provide quarterly credit report/score reviews for a low monthly fee, usually around $11-15 per month.  While not the cheapest option, this does provide you with year-round knowledge that your identity and credit are safe.  Some may provide additional services like immediate notification of any changes to your report, credit report dispute forms, and credit advice/counseling.
I hope this has been of some help in simplifying the credit haze.  Everyone has their own opinions on the subject and I don’t boast to know any more than the next person.  But I'm always happy to answer any questions.