The following details some of the most common misconceptions
and myths in your personal credit report. Please keep in mind everyone’s credit
score and analysis is unique. Credit reports are typically issued from 3 main
credit reporting agencies; Equifax, Experian and Transunion. The 3 Credit
Reporting Agencies (CRA’s), also known as Credit Bureaus, receive data from
thousands of different companies around the world. Companies that transmit data
to the CRA’s do so in different intervals. Some will report monthly, others
quarterly, bi-annually and some companies actually will only report data when
you are delinquent. The credit score that you receive from each of the
companies is derived from advanced calculations which are specific to the exact
time that you request the report. Your credit score could be significantly
different from one day to the next. Banks and lenders will determine a client’s
creditworthiness by reviewing the information and the scores found in your
credit report. The following will assist in obtaining the best possible credit
score.
- Payment History is the Most Important Element of Your Credit History
Your payment history is the most
important element in a credit report. Late payments will affect your credit
score based on the frequency and the recentness of the late payment. Typically
companies will report that your account was late if your payment is received
over 30 days past the due date. A Single late payment on an account can reduce
your credit score from as little as 5 to well over 100 points. If you
frequently have late payments, your credit score will have been affected the
greatest by the most recent lates. The first late payment for someone with
exceptional credit could reduce their credit score by up to 100 points in the
first month. The longer the period of time passes since the late payment; the
less it will affect your credit score.
- Debt to Credit Ratios Will Significantly Impact Your Credit Score
The amount that you owe on credit
cards and other revolving accounts have the second greatest impact on your
credit report. The ratio of what you owe on a single account versus your total
available credit can drastically affect your score. In addition to the single
accounts, the amount that you owe overall versus your entire available credit
is also considered in the calculation of your score. The ideal situation is to
not owe anything on your credit cards however if you do have debt it is better
to have it spread across several accounts than to have too much on a single
account. The maximum ratio that you can have before it starts to affect your
score is 30%. To calculate the ratio, divide the amount that you owe by the
available credit. Example:
$5000(Balance) /
$10,000(Credit Limit) = 50 % Debt to Credit Limit Ratio
It would be better to owe $2500 on
2 different credit cards that each had a $10,000 limit than to owe $5000 on a
single card. Be cautions of balance transfer offers that will cause you to owe
more than 30% of your available credit limit. From 30-50% Ratio your credit is
not being affected as much as it is when you get above the 50% Ratio when you
reach the 70% Ratio your credit can be severely affected. Be sure to spread the
debt amongst several cards to keep your credit score at the best possible
levels.
- DO NOT CLOSE OLD ACCOUNTS
The length of time since accounts have been established plays another
crucial role in the calculation of your credit score. Accounts that have been
established for several years should NEVER be closed. The media and bankers
previously advised clients to close accounts if they are not in use. As I
stated in section 3 the amount that you owe versus the total credit available
Ratio plays a significant role in your credit. If you have accounts that are
open and have no balance it will reduce the total ratio of available credit.
Showing consistency in keeping accounts for many years will consistently
increase your credit score. If you feel that you need to spend if you carry a
credit card, cut it up and throw it away, but don’t call to cancel it. But one
thing to keep in mind is that some creditors will automatically close your
account if not used in 6 months to a year. The best scenario is to only use it
a couple of times a year, charging a small amount and then paying it off as
soon as the bill comes in.
- You Need To Have Several Accounts to Get A Credit Score
The number of accounts that you currently have open will also affect your
score. The Credit Reporting Agencies must have enough data to create a score
for you. If you only have one account, the CRA will not have enough information
to calculate a score. It could take several years to establish a strong credit
profile, however, in a single month you can ruin what took years to build. If
you want to have the ideal credit score; a mix of several types of accounts
will be necessary to establish. Two to Three credit cards, a car loan, an
installment loan, a department store card and a mortgage is a good combination.
Again, keeping the balances low or zero will optimize the score. There are
several places that you can go to establish additional accounts. E-mail service@ExpertCreditConsultants.com
for a list of accounts that you can qualify for with little, bad or no credit.
- Paying off collections incorrectly can hurt your score
As derogatory accounts get older they affect your score less and less
as time passes. Paying off a collection account that hasn’t had activity in
several years can actually hurt your credit score. As soon as the account is
paid off; the collection company will report to the CRA that the account has
been paid that current month. Due to the fact that the account is still
considered a derogatory account, the now New/Current Derogatory account can
severely affect your score. I always advise individuals to payoff all collection
accounts, however, I suggest negotiating with the collection companies for
“REMOVAL” of the account as a condition for paying it off.
- IGNORING LATE NOTICES UNTIL THEY HIT YOUR CREDIT REPORTS
Ignoring collection letters will not make the debt go away. Once it’s
reported to your credit reports, it’s more difficult to deal with. Deal with
debt before the creditors report to the CRA’s.
Your credit is constantly changing; the above are some of
the items that affect your credit score. You can get a FREE credit evaluation
by e-mailing service@ExpertCreditConsultants.com.
One of our credit specialists will schedule an appointment to do a
complete analysis of your current credit situation. The specialist will also
consult and advise on the steps to take to increase your score over a period of
time. Some suggestions have increased scores as much as 120 points in a single
month.
Expert
Credit Consultants, LLC specializes in establishing business credit and funding
using the exclusive Business Credit and Finance Suite as well as credit
restoration and optimization. www.ExpertCreditConsultants.com.
