REALBRIANALLEN LLC Credit Education
Equip Yourself with the Right Knowledge and Insights About Your Credit!
Below are some of our credit improvement educational tips and information for you to explore.
What is a Credit Score?
A credit score is a three-digit figure that helps lenders assess and determine your creditworthiness. Simply put, it’s a number that gives a quick and easy overview of your financial health. It tells lenders, insurance companies, and others how much of a credit risk you are.
What Constitutes a Credit Score?
Your credit worthiness, which is indicated by your FICO score, is made up of 5 key factors, namely; payment history (35%), pending credit card debts (30%), credit history duration (15%), credit variances(10%), and new credit or inquiries (10%).
What is a Credit Report?
A credit report is a document that shows your credit history, how long you’ve had the credit, and how well you’ve been making payments. It also shows how much credit you still have available (credit score), your credit application frequency, personal information, and all the credits you have to your name.
Useful Tips on How to Improve Your Credit Score
Whether you have plans of applying for a loan or not, improving your personal credit is a smart financial decision. Below are some tips to help you improve your credit score.
• Know Your Credit Score
First of all, you need to understand that you don’t have one credit score only. However, you have three credit reports, which you can get from Equifax, TransUnion, and Experian. If you want to improve your credit, the first step is to check your reports from all three bureaus.
• Review Your Credit Score
The law allows you to request one free credit report per year from credit reporting bureaus. You also have the right to file a dispute if you find any error or false information. Your credit score would improve when the bureau is notified, and the error is deleted.
• Be Intentional About Debt Payments
Take deliberate steps to pay down your debts. Set a personal deadline and reminder for bill payments. If possible, pay a little extra than the minimum amount due on your bill payment. Prompt payment and consistency is another smart way to raise your credit score.
• Be Cautious of Charged Off Debts
While paying off your debts, you should be careful when paying off old debts, especially when it involves collecting agencies. This is because, sometimes, the creditor isn’t expecting you to make further payments, and you risk reactivating the debts by making payment. This could lower your credit score even further.
• Liaise with Your Creditor
If you realize that you can’t meet up a payment or have missed the payment deadline, the smart thing to do is to contact your creditors immediately to work out a more convenient payment plan. This is so that negative impact of late payments and outstanding debts doesn’t affect your credit score.
• Diversify – Add Another Credit Account
This option is a little bit tricky, but it’s a smart option. Considering the fact that mortgage, car loans, credit cards, and other credit mix contribute 10% of your credit score, adding one more component to the mix would impact your credit positively. Of course, provided you’ll make prompt payments as appropriate.
Credit Myths and Facts That You Should Know
So many myths surround the credit score and credit report world. While a few of them hold some truth, many are false. Below are some common credit myths and facts you should know.
1. You have one general credit score – FALSE
You have more than one credit score, and your FICO score differs with the different credit bureaus. Creditors may relay your data to any or all of them, and each calculates your credit score differently.
2. Everything payment-related is included on your credit reports – FALSE
Not everything is captured in your credit report. For example, library charges and parking tickets aren’t included, even if the payment is made to a collection agency.
3. Your loan will always be approved if you have a good credit score
While this might sound reasonable, it‘s not the case. Good credit means you have a higher chance of qualifying for a loan. However, it’s not an express ticket. Other factor like your income strength is also considered during your loan application. Your loan is only approved when your lender is satisfied with all necessary factors, including your credit score.
4. All late or missed payments on your account will be deleted if you pay off debt – FALSE
Even after paying the debt, late payment remains on your report. It takes about 7 years from the date day you missed the payment for the credit bureau to remove late payments from your credit report.
5. More debt means lower credit score – FALSE
All debts are not the same. Some are good, others are bad. Debt used as a financial investment, such as a mortgage, is a good debt. On the other hand, your credit card balance is a bad debt, and it influences your credit score more. Your credit utilization ratio is also another major factor, and a 10% – 15% ratio will help you maintain a high credit score.
6. Your credit score won’t be too affected by a single late payment – FALSE
Remember that your payment history influences your FICO score by up to 30%. Your credit score could drop by up to 50 points if you have a 30-days late payment. Always ensure not to attract any late payment. If possible, set up an auto bill payment to stay on the safe side.