Credit Profiles: 10 Tips to Improve Your Own
Credit profiles are crucial to every part of our financial lives. Loans are essential parts of the lives of most people, so having a good credit score is a must. Establishing a solid credit history is the foundation for attaining loans at competitive interest rates.
Yes, there are a plethora of ways people who have bad credit profiles can obtain items. There are bad credit loans, rent-to-own centers, and buy-here-pay-here lots for vehicles. However, none of these are financially sound moves. You’ll end up paying way more for your purchase because of the exaggerated interest rates attached to the loan.
In fact, to stop predatory lending, State governments have pasted usury laws and legislation to minimize the amount of interest a lender can charge. Having a good score will not only eliminate paying extra fees and interest rates, but it will also allow you to obtain better leases, make lower deposits and smaller down payments.
Tip # 1 Credit profiles in review
First things first – understand the basics of what a credit score is and how a it is calculated. Your credit score is a number that lets a lender know how much risk you present. It’s calculated based on your payment history; the amount of credit you’ve accumulated; the age of your debts; the mixed use of your debts; and public records. Derogatory notes clearly damage credit profiles.
Tip # 2 Credit Profiles and Reports
Understand that there are several different credit bureaus that collect information and your score varies among them. Lenders are not required to report to all the credit bureaus. The credit scores used are a Fico Score, an Experian Credit score, TransUnion and an Equifax credit score. The Fico Score is issued by the Fair Issac Company, whereas Experian, TransUnion, and Equifax have together developed VantageScore. Each of these credit report scoring systems has factors that you need to take into account.
Tip # 3 Pay your bills on time
Late payments will damage your credit score pretty fast. 35% of your credit score is based on paying your bills on time. The effect of a late payment will diminish over time, as long as you are on point in paying the rest of your bills by the due date.
Tip# 4 Credit profiles and high debts
30% of your score is based on how much you owe on your credit cards. If you have gobbled up at least 33% of your available credit card balance, you’ve negatively impacted your credit score. If you are maxed out on your credit cards, you will see a dramatic decrease in your credit score, even if you pay the bill on time.
Tip# 5 Have a range of credit types
The mix of credit you have accounts for 10% of your credit score. The algorithm favors people with both revolving lines of credit like credit cards and installment loans like mortgages and auto loans.
Tip # 6 Look out for Identity theft
Identity theft is a problem for millions of people. In fact, every 2 seconds a new person becomes a victim of ID theft. Monitoring your credit is probably the number one thing you can do to protect your score. Once someone becomes a victim of Identity theft, it could take years of tears to get themselves back to normal. It is a good idea to get a credit monitoring service like Lifelock. You can use services like Credit Karma.
Tip # 7 It’s good to have loans and debts
Believe it or not, being 100% debt free is not healthy for your score. If you do not have creditors reporting activity to the credit bureaus, the credit bureaus do not have data to score. I am virtually debt free. However, to keep my score active, I maintain point-based credit cards. I have DiscoverCard and Bank of America. I use one for monthly subscriptions like Netflix and gym memberships. I use the other one for daily purchases like gas, dining, and groceries. To add points, I use them for larger purchases, such as to pay utility bills and cellular bills. However, I pay them off before the due date each month so I maintain a positive credit profile.
Tip # 8 Dispute errors on your credit report
According to a report released by the Federal Trade Commission (FTC), one in five Americans report inaccuracies on their credit reports. These errors have pushed millions of borrowers into unjust high-cost loans and leases. If you find errors on your credit report, immediately dispute them by sending a certified letter to each of the credit reporting bureaus that report the error(s).
Tip # 9 Don’t apply for multiple new loans at the same time
Hard inquiries relate to loan applications and they account for 10% of your credit score and they remain on your credit report for two years. Having too many hard inquiries during the same time period can hurt credit profiles. Only hard inquiries from the past 12 months affect your score.
Tip # 10 Live within your means
Living within your means is the practice of spending less money, or the same amount you earn, each month. I once heard someone say “people buy things they can’t afford, with money they don’t have, to impress people they don’t know.” Avoiding this mistake will help you live within your means. Creating and sticking to your budget each month is probably the number one thing you can do to live within your means.