What to Know About Your Personal Credit Scores
In today’s money-driven society, it’s essential for working adults to know the ins and outs of credit scores. Knowledge is power, and when it comes to maximizing your borrowing power, there’s no better way than to learn about how the three major bureaus amass scores. The three, Experian, TransUnion, and Equifax, use proprietary algorithms to create precise numerical ratings for individuals. Couples are not rated together but separately.
What are the core facts about scoring, the bureaus, and what affects a person’s numbers? First, take advantage of the fact that each bureau must provide people with one free report per year. Likewise, there are several behaviors that can impact scores, like cosigning for a loan, being on time with bills, keeping card usage below 30%, filing for bankruptcy, having older accounts, and the number of recent inquiries.
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Everyone Gets Free Reports Per Year
It’s the law. Everyone gets free bureau reports per year, one from each of the agencies that compile the information. The main thing to know is that you much request the file to get them. Check the websites of Experian, TransUnion, and Equifax. Check the box to request report and fill out the required information. Expect to wait about a week to receive a paper copy in the mail.
Cosigning on a Student Loan Can Have an Impact
Whenever individuals cosign on any type of loan, they are putting their credit ratings on the line. Those who serve as cosigners for college loans should expect to see the obligation show up in their credit bureau reports within a month or two of signing. Before affixing your name to any else’s loan as a cosigner, it’s imperative to review an informative guide that explains all the advantages and disadvantages of the process.
While you can significantly help a young person, family member or not, gain approval for school financing, keep in mind that there are risks. Of course, the primary factor is that bureaus treat the loan as if you took it out for yourself, which is why the entry shows up on reports under your name. If you do take on this responsibility, be sure to monitor the primary borrower’s ability to make on-time payments.
On-Time Payments are the Centerpiece
Paying bills on time is the most powerful way to increase your creditworthiness in the eyes of agencies. However, not all payments are tracked or reported to them. Monthly utility billing statements only show up on the radar if you are seriously behind and the utility company hires a collection agency to recover the money from you. Those who are diligent about paying monthly and other bills on things like car loans, mortgages, school debt, personal loans, and credit cards tend to have excellent scores.
Credit Usage Affects Scores
Keeping plastic card usage below the 30% level of total available spending power is a smart way to maintain a solid profile on all three reports. If your ABC Bank card limit is $4,000, you’d aim to keep balances below the $1,200 mark, which represents 30% of the total. That amount seems to be what the bureaus believe is the line of demarcation for responsible usage.
Bankruptcy Can Be Tricky
If you’ve filed a bankruptcy in the past seven years, it will have an impact on your scores, but there are some details that come into play. First, lenders aren’t so concerned about older bankruptcies if the borrowers have gotten their financial affairs in order since filing. So, a five or six-year-old case probably won’t sink your chances of getting a car loan or mortgage.
Account Age & Inquiries Matter
Older credit and loan accounts that are paid on time are gold for an individual’s scores. Likewise, it helps to have few or no recent inquiries for additional loans. If you ever check your rate for a prospective loan, make sure it’s a soft pull and not a hard one.