When Your Financial Reputation is on the Line
Here’s the scenario, you’re planning to get a big loan for a new house or a new car, yet y ou’re having a
hard time finding a lending company that will offer you the low interest rate that you find fair and feasible
enough based on your financial capability.
Most of these financial institutions conduct a background check about your past and current payment
behavior. The first thing that they look out for is your credit score because it reflects whether you’re a
good payer or not. Just like the player’s stats, your credit score measures your financial performance and
the higher it is, the better your chance of getting low interest offers from creditors.
One of the major factor in your credit score is how much revolving credit you have versus how much
you’re actually using. Ideally, the smaller the percentage, the better.
Improving your current credit score takes time. There’s no quick fix and magic formulas. Consistency of
payment is the key to make your credit score soar high and become impressive to prospective lending
Let’s discuss the truth about your credit score:
Myth: Checking your credit reports will hurt your score
Fact: This is not true as long as it is a “soft inquiry.” Checking your own credit report or if a creditor checks
your credit report as a background check are commonly called a “soft inquiry.” Ideally, everyone should
check their reports at least annually as part of their good credit management.
In fact, the Fair and Accurate Credit Transactions (FACT) Act states that each legal U.S. resident is entitled
to a free copy of his or her credit report from each credit reporting agency once every twelve months. The
law requires all three agencies namely; Equifax, Experian, and Transunion to provide these reports.
Myth: Bad credit score can never be rebuilt
Fact: A credit report contains your credit history, and credit can be rebuilt over time. It keeps a record of
all credit opened in a consumer’s name. It will indicate which items are closed or inactive, but the history
remains nonetheless. Late or missed payments can stay on someone’s report for up to seven years.
Rebuilding credit means paying on time, looking for better credit options, and learning more about money
and credit. Additionally, the longer a credit history is without negative information, such as late payments,
Myth: Credit put Americans into financial mess and hardship
Fact: Credit is not really the problem. Spending too much is what people get into financial trouble. Credit
is a financial tool that can be beneficial if used wisely. Everyone should set a budget to ensure they use
their credit wisely and that they are not tempted to overspend.
Myth: Bankruptcy protection is perfect for people with really large amounts of debt.
Fact: Bankruptcy can remain on a credit report for up to 10 years and can make it difficult to get new
credit. It’s much better to work with a certified debt consultant who may find better debt relief options
for working with lenders to repay the debts. Settling the debts for less than originally agreed may be an
option that will have a less long-lasting impact on a person’s ability to get credit.
Myth: There’s only one score that all lenders use to determine creditworthiness
Fact: There are many different credit scoring models used by lenders in the marketplace today. Consumers
may be particularly familiar with FICO scoring but did you know that even FICO score has many versions
that a lender can use? Depending on the industry or type of loan you need, FICO has a wide-range of score
products specific for your lenders. The most widely-used is the FICO Score 8 that can be used for personal
loans, student loans and other types of credit but there are also versions that can be used specifically for
auto lending, credit card decisioning and mortgage lending. Generic scores may also be used by many
types of lenders and businesses to determine general credit risk. In 2oo6, the three national credit
reporting agencies — Experian, Equifax and TransUnion work together to develop VantageScore, a new
generic credit score that uses the same formula for credit information from all three bureaus to compete
with the FICO score. In 2014, VantageScore, claimed that 6 out of 1 0 largest banks used their scoring
system and has over 3 Billion credit score pulls. The difference between FICO and VantageScore is that
VantageScore calculations rely entirely on credit bureaus information and not income, bank accounts and
other assets. It ignores paid or unpaid collections but focuses more on how likely you are to pay your
credit each month.
Myth: Once a delinquent loan or credit card balance is paid off, the item is removed from a credit report
Fact: It’s not that easy. In fact, negative information such as late payments, collection accounts and
bankruptcies will remain on a person’s credit reports for up to seven years. Certain types of bankruptcies
stick around for up to 10 years. That means, paying off the delinquent account won’t be removed from a
credit report, but it will update the account to indicate it as “paid.”
Myth: Education level can affect a person’s credit score
Fact: This is a really funny myth. Education level is not part of a credit report, so it has no bearing on credit
scores. Information on credit reports pertains o nly to debt-related information. Therefore, loans, credit
cards and payment history will be reported, as well as bankruptcy, tax liens (debt owed to the
government) and civil judgments (debt owed through the courts) but information about income,
investments or assets such as stocks or bonds will not be included. Additionally, under the Equal Credit
Opportunity Act, a creditor’s scoring system may not use race, gender, marital status, national origin or
religion as prevailing factors.
As I’ve stated earlier, rebuilding credit score takes time. You may not feel the positive results instantly,
but with time and discipline, you’ll most likely achieve it. Of course, there are ways on how you can
improve your credit score:
Leave the good payment records
You may not believe it, but good records from your past debts can boost your credit score. It’s really too
long the wait for bad records to be deleted into your credit score, roughly around a seven year period.
Good old debts that have been handled well and paid on time are impressive points on your credit score.
Thus, making them stick to your credit records as much as possible will be a plus to your financial
Pay Bills on Time
I know that with this fast-paced lifestyle, most of you are juggling your monthly dues and there will come
a time that you’ll be unable to pay one or two of them on time. This will result for your credit score to
Keep in mind that one main factor of maintaining a high credit score is on-time payments–month after
month, and no excuses. One false move and you’ll end up fixing your score for the years to come. So, as
much as possible pay your bills on time.
One good idea for payment convenience is make one payment just before the statement closing date and
second one right before the due date. The first will likely reduce the balance that the credit bureaus see
and the second makes sure you won’t pay interest or a late fee.