Understanding Your Credit Part 3

Understanding Your Credit
And Making The Most Of It. (Part 3)

A Quick Recap!

A credit score is a number lenders use to help them decide: If I give this person a loan or credit card, how likely is it that he or she will become 90 days or more late in a 24 month period. A credit score is a snapshot of your credit risk at a particular point in time. It may range from 350 to 850 with the average consumer score being 686. Credit scores are provided to lenders by the three major credit reporting agencies also know as repositories: Equifax, Experian and TransUnion.

Five Factors Determining A Credit Score

1. Late payments.
2. Frequency and patterns of credit use.
3. How long credit has been established.
4. The number of times credit has been requested (inquires).
5. The types of credit (i.e. revolving, installment, secured, unsecured.)

How Credit Bureaus Rank your Credit Score

1. 35% is based on payment history.
A recent 30 day late payment is worse than a 90 day late payment that occurred more than 12 months ago. This can lower your score by 60 points or more.

2. 30% is based on existing balances.
Make sure the balances do not exceed 50% of the maximum limit on each card. Over 50% of the credit card limit will have a significant negative effect on your credit score. Distribute existing credit card debt among three to five cards.

3. 15% is based on how long your credit has been established.
Do not close accounts that have a perfect payment history and have been open for at least three years. These cards have a positive effect on your credit score.

4. 10% is based on types of credit.
A combination of credit types is best. For example, a mortgage, an auto loan and three to five revolving credit cards is ideal. Home equity lines of credit are reported as a credit card debt when the amount is less then $30,000. Try to apply for lines of credit for at least $30,000.

5. 10% is based on inquiries.
Credit inquiries from various industries can lower your credit score up to 60 points. If multiple mortgage inquiries are within a 30-day window, they count as one inquiry in total. This is also true for the auto and insurance Industry inquiries. Personal credit and bank account review inquiries do not count.

Tips To Help Protect Your Credit

1) Be very careful providing personal financial information over the internet. If you are going to provide credit card numbers, social security number, etc over the internet make sure it is through a secure website. Look for https:// instead of http:// at the website address and look for the little yellow padlock on the lower right corner of the screen.

2) Use a paper shredder when discarding any personal credit information such as credit solicitations, credit card statements, pay stubs, invoices, bank statements, etc

3) Keep a list of all credit card accounts with their respective customer service phone numbers in a safe place in the event your wallet or purse is lost or stolen.

4) Never use your full name on personal checks, use your initials instead. For example: J. Doe or J.C. Doe. If your checkbook is lost or stolen, no one will know how to sign your check (except for the bank.)

5) When paying your credit card bill, do not put your full credit card number on the memo line of your personal check. Only list the last 4 digits of your account number.

6) It is not wise nor is it necessary to carry your social security card in your wallet or purse. Commit the number to memory and keep the card at home in a safe place.

7) If your wallet or purse is stolen, contact one of the three credit bureaus immediately and have them issue a fraud alert. That credit bureau will notify the other two. This will be done free of charge and you will receive a credit report showing that the fraud alert has been issued.

Here are the three credit bureaus:

Equifax 800-685-1111 www.equifax.com
Experian 888-EXPERIAN www.experian.com
Trans Union 800-916-8800 www.transunion.com

As always, if you need help or advice, just give me a call or email. More to follow!