When it comes to finances, some things are just common sense. You always want to have more coming in than you have going out! However, when it comes to managing and maintaining healthy credit history common sense may not be so common. Here are answers to the top five most frequently asked credit questions;
- HOW DO I GET MY CREDIT REPORT? The FACT Act is legislation that was passed to give individuals free access to their credit report once every year. All Americans are entitled, by law, to one free copy which lists all debts and payment history associated with those debts connected to a given social security number. There are three major credit reporting agencies that can provide the annual free credit report mentioned above; Equifax, TransUnion, and Experian. Or for immediate access to these free reports, you can simply visit www.annualcreditreport.com. Just keep in mind that by obtaining your free credit reports through this site, you will be giving the credit bureaus 45 days to respond to any future disputes you might submit to them, versus the standard 30 days allotted to them by law.
- WHAT IS A GOOD CREDIT SCORE? Every lender is different. Some are willing to take the risk of lending to anyone. Others require a very well established history of consistent, on time payments. It is completely up to the lender to determine the guidelines by which they choose to lend as well as any exceptions they may be willing to make.
With a credit score of 300 – 580 being denied for a line of credit is likely. Credit approval in this range usually comes with very high interest rates.
581-650 While credit approval is slightly more likely in this range, it will still be accompanied by a high interest rate.
651-710 Approval becomes less of an issue here and interest rates, while moderate, begin to decline.
711-750 Competitive interest rates make financing much more attractive in this range.
751 & Up merits the most competitive rates and most attractive financing and lending options.
To make this a bit more practical, with a 550 credit score you may be financed at an interest rate just three to four points higher than someone with a score of 720 which may not seem like much. However, over the life of a $25,000 car loan this works out to several thousand dollars difference in interest. Apply these figures to a $200,000 home loan. Now we’re talking about more than $100k in interest over 30+ years.
- WHAT DOES IT MEAN TO HAVE “NO” CREDIT?
A credit report is a record of financial history. If an individual has never borrowed money or paid bills before there, essentially, is nothing significant to record. This is common among young adults, students, and those that prefer not to use credit to purchase things. Having well established credit history becomes extremely useful when applying for a large loan, such as a mortgage.
These groups can “establish” credit by starting small. A credit card is a good place to begin. Using the card regularly and paying more than the minimum payments on time or even early is a great way to begin building a credit history.
Taking out a larger loan, such as buying a car, with a co-signer is another smart way to add to your credit history. Take caution, however, to be particularly responsible with this type of loan as missed or late payments will have a direct adverse impact on the credit history of the friend or family member who was kind enough to co-sign the loan.
- SHOULD I CLOSE CREDIT CARDS I DON’T USE?
I normally don’t answer a question with a question but… Why don’t you use them?
If you took the time to apply for the credit card you must have seen the benefit at one point or another. Perhaps you no longer feel those benefits are applicable. One benefit that applies to any form of available credit is that it improves your debt-to-credit ratio; what you owe vs. what you have available.
Keeping those credit cards “alive” also helps to extend your credit history and shows that you have been able to maintain your good standing with a creditor over time. What does all this mean in “Plain English”? Higher credit score and more credit approvals.
Use these credit cards strategically by charging one or a few items regularly. Be sure these are items you can afford to pay off, and do just that!
- WILL CHECKING MY CREDIT BRING DOWN MY SCORE?
A credit “check” in industry terms is more commonly referred to as an inquiry. You may also hear the term “pulling” as it relates to a credit inquiry, as in “pulling your credit report”. Basically, this refers to accessing a credit report to assess the information listed on it. There are two types of inquiries, hard and soft.
Hard inquiries are those performed by companies and organizations typically to determine whether or not to extend some form of credit or opportunity. Hard inquiries do slightly lower your credit score. Soft inquiries are those performed by the individual themselves, or on their behalf, for informational purposes. Soft inquiries do not hurt your credit score.