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How to build your credit score
You’ve seen all the commercials that talk about needing a better credit score. But none of them seem to outline exactly which steps you take to make that happen. Read on for some practical ways you can improve your score and keep it growing. First, let’s look at some of the basic information you need to know about credit scores.
What is a credit score?
A credit score is three numbers, typically between 300 and 850, that are used to show potential lenders how often you pay your bills on time. Many times, lenders will only let you borrow money if your score is above a certain number, or they may require higher monthly loan repayments if your score is on the lower end. The score is determined by your past credit history and payment history.
What is a good credit score?
Credit scores are divided by numbers into five categories:
- 300-579: Poor
- 580-669: Fair
- 670-739: Good
- 740-799: Very good
- 800-850: Excellent
You can use your score to determine where your credit rating, which is expressed as a letter grade, will fall.
How can I improve my credit score?
You know what a credit score is, so let’s talk about how you can improve it. Below are nine tips and tricks to help you check your credit score for free, plus the ways you can make your score better.
1. Know your score
There are a few ways you can find out your credit score for free. You can check your credit card or other loan statement—many credit card and auto loan companies now put your score on the statement to allow you to keep up with it. You can also talk to a non-profit counselor who can work with you to find out the info you need. Or you can use a service like Experian to check your score for free once a year, or use a website like myfico.com, which allows you to access your credit score more often for a fee.
2. Pay your bills
This may seem obvious, but if you want better credit, pay your bills on time. This means everything from your latest electric bill to your monthly car payment. Lack of payment will lower your score, and it can take a long time for those late payments to fall off your record.
3. Leave your credit cards open
If you decided to switch credit card companies, that’s great. Just be sure not to close your old card after paying it off because a closed card can ding your credit score. However, if you’re paying a large annual fee to keep the card open, it may be worth risking a slightly lower score instead of paying tons of money for a card you don’t use.
4. Lower your debt
Easy to say, hard to do, right? But whittling down your debt goes a long way in raising your credit score. Many experts say to start small—pay off your smallest debt first, and then go to the next-smallest, and so on. This will allow you to rid yourself of some debt without draining your bank account.
5. Stop applying for store credit cards
There is nothing wrong with a store credit card, but you do want to be cautious of how many you apply for, and how many times you try to get approved. When you apply for credit of any kind, it has the potential to lower your score, as it is a sign to potential lenders that you need a lot of credit and can’t pay for it all (even if you’re just applying for the card to get the discount).
6. Keep up with your score
We mentioned some resources above that allow you to track your credit score without lowering it. It’s important to know your credit score and if or when it changes. For one thing, you want to know if your hard work is helping your score! You’ll also be able to monitor any potential suspicious activity, like identity theft, by checking on your score more often.
7. Maintain a credit history
While you know you don’t want to open ten credit cards at once, you also don’t want to find yourself with no credit history at all. Lenders want to see a consistent history of paying your bills on time, and having no credit to your name doesn’t show them how reliable you are at repaying loans. Consider opening one credit card and paying it off monthly to build some credit that won’t send you into tons of debt.
8. Dispute credit inaccuracies
Remember how you need to monitor your credit score on a regular basis? One more reason to do this is so you can report and dispute any inaccurate information. It takes seven years to get rid of “bad” credit, so having these problems corrected will make a big difference in upping your score.
9. Consult an expert
There are financial professionals who specialize in understanding and building credit, so if you still don’t know where to start, set up a meeting with one of these pros. You will walk away with some new information about how to build your credit, along with a solid plan for reaching your next credit score goal.
Financial matters aren’t anyone’s favorite topic to discuss, but you have to have a handle on your credit score to give yourself the best chance for financial success. Learn your score today and start taking steps to make that number climb even higher.
Does a balance transfer affect your credit score?
Balance transfers are an excellent way to consolidate your debt and pay it off as quickly as possible. But, it does have positive and negative impacts on your credit score. Despite some minor negative impacts, balance transfers can immensely transform your credit score. Here’s how:
How does a balance transfer negatively affect your credit score?
A balance transfer can cause a dip in your credit score in the short run. When you apply for a balance transfer, lenders conduct a hard inquiry to determine if you’re a capable borrower. Hard inquiries remain on your credit report for about two years. Several hard inquiries show you’re seeking credit from too many sources, which could indicate you may not be a reliable borrower. This differs from a soft inquiry, which is when you check your credit or a lender is trying to pre-approve you. Soft inquiries do not affect your credit score.
Balance transfers can also lower your credit score by reducing the average age of your accounts. If you have three cards with an average account age of 48 months, and you decide to open a balance transfer card as your fourth, the average age of your accounts would lower, which could drop your score.
This has a minimal impact on your credit score, but it’s still critical to be aware of. It’s imperative to keep old, unused accounts open to maximize the average age of your accounts. But, if an old account has a high annual fee that you can’t afford, then it might be in your best interest to close it—weigh the pros and cons before closing the account.
How does a balance transfer positively affect your credit score?
Despite some hindrances, a balance transfer can considerably raise your credit score. Balance transfers reduce your credit utilization rate, which is the percentage of available credit that you’re using.
Low rates show that you’re not accumulating debt. Ideally, you want your credit utilization rate to be below 30%. For example, if you have multiple credit accounts and move the balances to a single account, your credit utilization rate shows as 0% on the old accounts. It’s crucial to take advantage of the 0% APR period so you can pay off your debt as soon as possible. This will then decrease your credit utilization rate over time.
Your credit utilization rate accounts for 30% of your FICO® Score, which is the score most used by lenders.
What should I do after I apply for a balance transfer?
After you’ve applied for a balance transfer, avoid applying for more credit. Limit the number of hard inquiries on your credit report as much as you can, and only apply for loans unless they’re necessary.
Don’t make purchases with your balance transfer card. The sole purpose of your card is to pay off debt, not accumulate more. When you add to that debt, it makes paying your balance during the 0% APR period more challenging. Create a budget to cut out unnecessary expenses and avoid accruing more debt.
Lastly, set up auto payments to ensure you’re paying your credit card bill on time each month. This boosts your credit even more—payment history accounts for a large portion of your FICO® Score. Choose a specific amount to transfer from your checking account to pay your bill. It should be enough to pay off your card within your 0% APR period.
Balance transfers can do wonders for your credit score, despite some drawbacks. When you use a balance transfer card responsibly, your credit score can grow in the long run. Check your spending habits, stick with your budget, and you’ll be debt-free in no time with a credit score on the rise.
If you’re ready get your finances in order, try a balance transfer.
How recent credit score changes may be helping you
Recently, the three major credit reporting agencies removed nearly all civil judgments and about half of all tax liens from consumer credit reports. It’s all part of the National Consumer Assistance Plan (NCAP), a series of changes initiated by Equifax, TransUnion, and Experian. The actions were the result of a study by the Consumer Financial Protection Bureau that identified problems with credit reporting and recommended changes to improve credit reporting, accuracy, and quality, and to increase consumer credit education.
Improved reporting requirements
Under the NCAP, in order for any public record to be included on a credit report, it must include the name, address, and social security number or date of birth of the consumer. The provider of the information must also visit the courthouse at least every 90 days to obtain newly filed or updated public records.
Non-compliant reporting raises credit scores
The bureaus estimated that over half of all the tax lien records and 95% of all judgments did not meet the new data criteria, which required them to be excluded. Because both judgments and tax liens negatively impact credit scores, some consumers may have seen a boost, depending on which credit scoring model was used.
The most common impact was an increase of 11 points, but 18% saw gains of 30+ points. People who saw the most significant jump started with a relatively low credit score. In contrast, almost 20% of consumers saw a decline in their credit score once collections were removed, but it was more likely because those consumers worsened their scores in other ways.
Mortgage rates may still be impacted
Just because judgments and tax liens won’t necessarily be reflected in your credit score, doesn’t mean, however, that you can escape the financial consequences that they bring, especially if you’re applying for a mortgage.
Mortgage borrowers who have a judgment or tax lien were found to be 5 ½ times more likely to go into pre-foreclosure or foreclosure, so many mortgage lenders still want to see this type of information. Fannie Mae, for example, requires their approved lenders to follow their Selling Guide, which requires borrowers to pay off delinquent credit, like judgments and tax liens, at or before closing.
If you’ve seen a bump in your credit score, good for you! Leverage the momentum and keep your score moving up. Pay every bill on time, keep your credit utilization low, and monitor your credit report. Reporting errors are not uncommon, so check your report regularly for inaccuracies.
To request a copy of your free credit report, visit www.annualcreditreport.com By law, you are allowed one free copy of your credit report every 12 months from each of the three major credit bureaus — Equifax, Experian, and TransUnion.
Equifax Breach: What You Need to Do Right Now
You’ve probably seen the news regarding the recent data breach involving Equifax. Even though this is not a Georgia’s Own event, we want to make members aware of the facts as well as recommend some resources to help you respond to the data breach.
Chances are good that the Equifax data breach affects you. What do you do next? The short answers: Consider a credit freeze. Scrutinize your credit statements. And check your credit reports from all three credit bureaus.
Equifax says hackers used a website application vulnerability to access the personal information of about 143 million U.S. consumers, or more than half of the country’s adult population. Credit bureaus such as Equifax are an especially sensitive target because they handle detailed financial records, and it’s nearly impossible for consumers to avoid credit reporting. Every time you apply for credit, the personal data — including your name, birthdate and Social Security number — you share can be stored by a reporting bureau.
Most credit card issuers and lenders report consumer activity to all three major U.S. credit bureaus, and your data is likely duplicated at Experian and TransUnion. There’s no reassurance in the fact that only one bureau was hacked.
“On a scale of 1 to 10, this is a 10, and that’s because of the quality of the data … your Social Security number is the skeleton key for your identity,” said Adam Levin, founder of CyberScout, a company offering identity theft and data breach defense services.
Freeze your credit for the best protection
Credit freezes prevent stolen information from being used to open new accounts in your name by restricting access to your records. Without access to your credit history, most creditors won’t open a new account.
“We have to assume that our personal information is exposed and act accordingly,” Levin said. He said a credit freeze has become “a critical thing to do.”
Credit expert Barry Paperno, who blogs at Speaking of Credit, agreed: “That’s the most extreme method, but it’s also the most effective.”
But this most effective method will cost you in money and inconvenience.
A freeze might cost you a small fee, which varies from state to state, but it’s better than a credit monitoring service. A freeze can prevent fraud, while monitoring alerts you fraud might have happened. It’s the difference between using a deadbolt to keep thieves out rather than a security camera to catch them after the fact.
You’ll also have to pay to lift the freeze each time you apply for credit or need to allow a potential landlord or employer to check your credit. You’ll receive a PIN to “thaw” your credit. Keep it in a safe place.
Here’s how to request a freeze:
- Equifax: Call 1-800-349-9960 or go online
- Experian: 1‑888‑397‑3742 or go online
- TransUnion: 1-888-909-8872 or go online
Even with your credit frozen, you’ll still have access to your credit records and scores. If you don’t already have a way to regularly monitor your score and report information, consider signing up before you place a freeze. Some credit card issuers and many personal finance websites offer them for free. Watching for a big, unexplained change can alert you to potential fraud.
Place fraud alerts if a freeze is too much
If you don’t want to lock out all creditors — perhaps you’re in the middle of mortgage shopping or refinancing — you can place a 90-day fraud alert on your credit. This tells potential creditors to verify your identity before issuing credit in your name.
Contact one of the three bureaus, and it will notify the others.
Monitor your own credit
You’re entitled to at least one free credit report from each credit bureau every 12 months via AnnualCreditReport.com. If you haven’t accessed your credit reports within the past 12 months, do it now. If you’ve reviewed them recently, placing a fraud alert on your credit files allows renewed access.
Use your reports from the bureaus, and any free score and report services you have, to watch for:
- New accounts that you didn’t open
- Credit inquiries that don’t match when you applied for credit
- Balances that don’t match your statements
Deal with your credit cards
Freezing keeps new accounts from being opened, but doesn’t stop fraudulent charges on an existing account. Take these steps to protect yourself:
- Check your email and regular mail. Some consumers whose account numbers were compromised are being notified by credit card issuers that they’ll be sent a new card and the old one will be deactivated.
- Even if you’re not notified by your issuer and you think your data wasn’t in this breach, don’t relax. Stay vigilant by checking your credit card statements for changes you don’t recognize. If something looks fishy, dig further. Often there’s a phone number listed with the merchant name for the transaction.
- Consider signing up for text or email alerts about credit transactions. Many issuers let you set them for charges above a certain amount.
If you see a charge you think isn’t yours, call your issuer right away to dispute it. Your card issuer can’t charge interest or fees on the transaction while it’s being investigated.
What was exposed? Is my data out there?
The data accessed includes:
- Information such as names and addresses, birthdates, Social Security numbers and some driver’s license numbers
- Credit card numbers for approximately 209,000 consumers
- Some documents from about 182,000 consumers’ credit report disputes, including personal identifying information
Consumers can check whether their information is affected at www.equifaxsecurity2017.com. However, the “Check potential impact” process asks you to input the final 6 digits of your Social Security number, which gives security experts pause.
Equifax also opened a call center that you can reach at 866-447-7559. It will notify the subset of consumers whose credit card numbers or dispute documents were affected by mail.
Should I sign up for the free Equifax monitoring?
Equifax is offering all U.S. consumers free credit and identity theft monitoring for one year. But the risk doesn’t disappear after a year. Someone who has your Social Security number has it — and might try to use it — forever.
The service is through TrustedID, an Equifax company. The terms of service include waiving your right to participate in a class-action lawsuit or class arbitration and agreeing to use individual arbitration. The National Consumer Law Center has called upon Equifax to strike that clause. Failing that, the NCLC advises consumers they can opt out of the forced individual arbitration by notifying Equifax in writing within 30 days.
If you have any additional questions, you can reach out to us or visit identitytheft.gov/databreach to learn more about protecting yourself after a data breach.