Never Miss Or Be Late On Any Credit Repayments It Can Have A Disproportionate Impact
Sounds obvious? Well, it is. Even if you’re struggling, try not to default or miss payments because it can have a disproportionate impact. Doing this once or twice could cause problems that can cost you for years. Defaults in the previous 12 months will hurt you the most.
The easy solution is to pay everything by direct debit, then you’ll never miss or be late. While we normally caution against only making minimum repayments on debts one technique is to set up a direct debit to just repay the minimum, purely as a vehicle to ensure you’re never late. Then manually pay more each month on top.
If you are in difficulties, the cliché “contact your lender” is a good one. Hopefully it will try to help. Changing your repayment schedule is preferable to you defaulting and though it will hit your credit score, it’s better than a county court judgment or decree against you.
What Is A Credit Rating And Credit Score
A credit rating shows how likely a typical lender would be to offer you credit.
When you apply for credit such as a loan, credit card or mortgage the lender tries to predict your future behaviour based on the way you’ve acted in the past. Credit scoring is fairly intuitive just think whether you’d lend to someone with a history of not repaying?
To work it all out, lenders look at lots of different data. This may include how many applications you’ve made recently, how much you owe, what credit products you’ve had and whether you paid them all off on time. Some of this will come from their own information, but often they will also consult credit reference agencies Experian, Equifax or TransUnion, which hold much of this data on you.
But the world of credit ratings is rife with misinformation and misunderstanding. Much of it’s because lenders don’t want it understood, and credit reference agencies want you to think it works a certain way so they can sell you extra products based on fear.
This jargon buster should help you navigate the world of credit ratings and scores:
How Credit Scores Are Determined
Information found in your credit report is used to determine your credit scores, which might include the following:
- Your history of debt payments
- Hard inquiries6 on your credit score from new credit applications
- The amount of debt you currently have on your credit accounts
- The age of your credit accounts
- The amount and type of loan accounts you have open
- The percentage of available credit you’ve utilized
- If and when you had a foreclosure, declared bankruptcy, or had debt sent to collections
It’s common to see varying credit scores when you look at different sources. Credit Karma and other services might display different credit scores, like TransUnion VantageScore, which is different from the TransUnion FICO score that’s used for your Apple Card application. Your credit report and the timing of when your credit score is updated can affect your credit score.
For information about credit scores from TransUnion, please click here.
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How To Build And Maintain A Good Credit Score
Once you have a credit score, how can you help maintain or improve it? First, you need to understand what is considered a good credit score. Both the FICO® Score and VantageScore models range from 300 to 850. Using the FICO scoring model, a score 670 or higher is considered good and a score of 800 or above is considered exceptional. A VantageScore 661 or above is considered good while a score 781 or above is considered excellent.
The higher your credit score, the more likely you are to be approved for loans or credit at the best rates and most favorable terms. The lower your credit score, the more difficult it will be to get a credit card, obtain favorable terms on a loan or even rent an apartment.
Whether you want to improve your credit score from good to excellent or you’re trying to raise your poor credit score to the fair range, there are plenty of things you can do right away to build credit history and improve your credit score.
Improving Your Credit Score One Step At A Time
If youre able to make one of these options work, you should be on your way to an improved score in no time. Just remember, its important to take the process seriously and pay all of your bills on time every single month no matter what.
While its true that a slew of on-time payments can help your score climb, its also true that just a few late payments can completely wreck any progress youve made. And when it comes to building credit or improving your credit, the last thing you need is another hurdle to climb.
How did you build your credit score over time? Do you remember your first loan or credit card?
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Stability Counts Use Consistent Details Between Applications Don’t Overchurn
Homeowners rather than renters, and those who are employed, rather than self-employed, tend to be more readily accepted for credit.
Some lenders may factor in having a fixed line rather than a mobile number on application forms, though it’s unlikely it’ll affect your score, so don’t go paying to have one installed if you don’t already have one. Having the same employer, bank and address for a while all help too.
Keep personal details the same between applications. It’s crucial to be consistent, even over long periods, when you fill in applications. If you have a number of job titles or phone numbers, try to use the same one on every form. If you use different ones, you might be flagged up by fraud scoring.
Lenders can’t reject you just for this, but they should tell you if National Hunter has been a contributing reason why they declined you for credit.
Dont Apply For Too Many Credit Cards
Each credit application you make is added to your file and lowers your score. Why? Because too-frequent applications can be a sign of financial desperation.
Unfortunately, the ease of online applications â and the fact some customers enter âtrialâ submissions â means many have a lot on their file.
So do your research online, but talk to lenders rather than formally applying .
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What Can Trigger A Hard Credit Check
A hard credit check takes place if you have specifically applied for something thats as small as a credit card or as big as a home mortgage. In this case, the lender will assess your credit history and will accordingly make the decision of approving or rejecting your loan. As mentioned before, they will require your consent before proceeding with a hard credit inquiry. Of course, mistakes happen. That is why it is always a good idea to check your credit score for mistakes.This means there wont be any random hard credit pulls on your profile.
When the lender conducts a hard credit check, your credit score may be negatively affected for up to one year. If youre wondering why theres a decline in your credit score, it might have to do with frequency. If you apply for multiple loans in a shorter period of time, lenders wonder why. It is a red flag that indicates you may be experiencing financial distress and desperate for credit, which can lead to a decline in your credit score.
You can expect to receive hard credit checks when applying for a mortgage, a car loan, a , a student loan, a personal loan, or a line of credit. Even requesting an increase to your credit limit will trigger a hard check. Why? It is because you want to access other peoples money for your own purposes. The lender wants to evaluate you and how likely you are to pay back the loan on time.
Ways To Build Credit Without Debt
You dont necessarily have to open a new credit card or take out a loan to establish a credit score. The same is true if you want to improve a score thats been bruised and battered by financial missteps. These alternatives probably wont send your score soaring into the 800s, but they will help you establish a credit history or bump up a bad score.
1. Sign up to have rent payments reported to the credit bureaus.
Eventually, DeLeeuw and her husband were able to rent an apartment by putting up a large cash deposit. Once a rental agreement was in place, they asked the building manager to report their rent payments to the credit bureaus. She agreed, and thats how we started building credit without actually taking on debt, DeLeeuw said. We simply made sure to pay our rent on time.
Newer versions of the FICO score, including FICO 9 and FICO XD, consider rental information when calculating your score. So does VantageScore. However, most older versions of FICO that are widely used today do not consider rent to be a tradeline that gets reported to the credit bureaus. In fact, FICO estimates less than 1% of credit reports contain rental information.
2. Get added as an authorized user.
One of the easiest ways to establish credit without having to put yourself into any type of debt is to get added as an authorized user to a long-standing, high-limit card of a family member or close friend, said Michael Foguth, founder of Foguth Financial Group in Brighton, Michigan.
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Avoid Applying For New Loans At The Same Time
A single hard inquiry will have a lesser impact on your score than multiple hard pulls. If you want to reduce the impact of hard credit checks, the very first option will be to not apply for several credit products or loans simultaneously. The logic is simple. If youve applied for many credit cards within a short period, lenders do more hard credit checks. The result? It can cause a significant drop in your score.
However, this does not apply when it is a mortgage or if you are car shopping. Applying to multiple mortgage lenders or shopping for a car at different dealerships will each only register as one check. Lets look into that.
How Errors Could Drive Your Credit Score Down
When you pull your credit report or review your credit score, take note if you find the information you dont agree with or incorrect terms.
Maybe a reason code doesnt make sense to you because it doesnt apply to your financial situation. Or you could even find evidence of accounts on your report that you didnt open.
That sounds a little weird but mistakes happen, and they often find their way into your file. In this case, you need to contact the credit bureau that issued the report and file a dispute.
Depending on the error, you may also want to follow up with your other financial institutions and check for fraud.
Accounts that you didnt open but show up on your credit report could be evidence that someone is using your information to commit credit fraud or identity theft.
Needless to say, checking your own information on a regular basis is important. Not only can you catch fraud if it happens, but you can also spot errors that might unfairly drive down your score.
You can get a copy of your credit report every year for free.
If you request copies more than once per year, youll pay up to $12 for each additional report. Again, if you find mistakes, open a claim or dispute with the credit bureaus.
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Get A Student Credit Card
If youre a student, you may qualify for a student credit card. These cards are designed for college students who may not have enough income or credit history. To qualify, you may have to provide proof that you’re enrolled in a qualified college or university.
There are several great student credit cards that you can choose from. Narrow down your options by comparing student credit cards based on the fees, interest rate, and other perks.
Some credit card issuers allow you to use use scholarships, grants, or work study as income to qualify for a credit card.
How Long Does It Take To Build Credit History
Building a credit history wonât happen overnight, but if you follow the steps we get to later in this guide, you can actually start to see some good results with it sooner than you might think. If youâre just starting out with your own finances, youâll need to have an active account for at least three to six months before a credit score can be calculated.
When youâve started to build your credit history, make sure you keep on top of any payments you need to make, so that the history you do build is one that youâre really proud of, and one thatâll make lenders more keen to lend to you.
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Keeping Track Of Your Credit Score
Once you have established a credit history and a credit score, itâs important to keep track of both. While living in the U.S, your credit score will have a big impact on your financial well-being and ability to secure certain services.
Regularly checking your credit report will not only let you know assess your financial standing but also allow you to address any potential issues. For example, if your credit report contains information that doesnât relate to you â a credit card that was opened in your name that you never opened or charges to your accounts that you never made â it could be a sign of identity theft. Credit reports can also reflect inaccuracies â late payments made on time, or missed payments that you made. These inaccuracies can negatively impact your credit score and your financial well-being.
If you spot any issues with your credit history, you can file disputes with the credit bureaus. Make sure that you have the necessary documentation to back your disputes . Once any disputes are rectified, your credit score will go up.
Tips To Boost Your Creditworthiness
The better your creditworthiness, the more ways youâll have to get ahead.
We have previoulsy looked at why creditworthiness matters. We learnt that law changes in March 2014 altered what information is collected for your credit fileâand how this âpositiveâ reporting can help you.
But your credit score isnât fixed. Here are our top 10 tips to improve it.
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‘soft Searches’ Incl If You’ve Checked Your Own File
Some lenders will do a soft search of your credit report, to tell you both whether you qualify to borrow from them, and what rate they are willing to give you. This isn’t passed on to other lenders when they credit-check you.
When you check your own file, it does appear on your credit report. It’s not always clear, but the words “administration check” or “quotation search” should indicate something, but lenders can’t see this so it doesn’t play any role in any assessment of you.
No Credit Score Doesnt Mean A Zero Credit Score
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The most frustrating thing about credit might be the chicken-and-egg problem of establishing it: Nobody wants to give you credit when you dont have a track record of using credit.
But if youve never had credit and dont have a credit score, that doesnt mean you have a zero credit score. You have the absence of a score: Youre credit invisible.
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Can You Have A Credit Score If You Dont Have A Social Security Number
The credit bureaus use sensitive information to keep track of your credit history. This information includes your Social Security number, your name, your date of birth, your address, and your employment history. While a Social Security number is an identifier that credit bureaus use to locate and collect your information, itâs only one of several identifiers. If you donât have a Social Security number, credit bureaus can access your credit history using the other identifiers like your name, date of birth, address, and employment history.
While a Social Security number does improve the accuracy of matching credit history with a consumer, it isnât necessarily required to create a credit report and an accompanying credit score.
What Does Your Credit Score Start At
It all depends on how you start using credit. Some people wonder whether the starting credit score is zero, for example, or whether we all start with a credit score of 300 and work our way up from there. The truth is that theres no such thing as a starting credit score. We each build our own unique credit score based on the way we use credit.
If you havent started using credit yet, you wont have a credit score. You begin to build your credit score after you open your first line of credit, such as a credit card or a student loan. At that point, your credit score is determined by the way you use that initial credit account. As lenders report your credit activity to the three major credit bureaus , youll begin to build a credit file that will be used to determine your starting credit score.
When a lender or landlord performs an inquiry into your credit history, they see a credit score that reflects the way you use your open credit accounts. The key factors include whether youre making payments on time and how much of your available credit youre using. If you use your first credit account responsibly, you could establish good credit before you know it. If you miss payments or max out your credit cards, your brand-new credit score could suffer.
What is the starting credit score? Thats the wrong question to ask, since the answer doesnt technically exist. Instead, ask yourself how you can build the best credit score possible.
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