A credit score is a three digit number that correlates to how financially trustworthy a person or company is. The higher the credit score the cheaper your interest rates are and more financially trustworthy.
When it comes to credit score and understanding your credit report card, usually many of us are not certain what to look or worst of all how to use credit to our advantage. In order to have winning results in anything, it is imperative to understand the key principles of the best strategy to use. Many people use credit as leverage to stay above water and trying to make ends meet, whereas, a few people use credit as leverage to generate and create wealth. This all starts with understanding how to manage your score and knowing that not all loans are the same. Below is a list, though not exhaustive but it will give an overview of the different sections to consider in regards to managing your credit.
There are 3 main credit bureaus TransUnion, Equifax and Experian and they generate a credit report for you by evaluating your credit score. The credit score is calculated from different criteria which include:
- credit usage
- types of credit
- length of credit
- recent inquiries
- payment history
The above-listed criteria are further analyzed to determine if you are creditworthy, obviously, if you have a higher score, you are regarded as a more trustworthy borrower. The scores are segmented into different groups such as:
|Poor||300 – 579|
|Fair||580 – 669|
|Good||670 – 739|
|Very Good||740 – 799|
|Exceptional||800 – 850|
Of course, the higher your score is the lower the interest, cheaper the loan and vice versa, the lower the score, the higher the interest and the more expensive the loan is.
This covers how much of the available credit you can use. It is widely advised not to use your credit to the max and worst not pay off the full balance, as this translates to poor credit management and reflects as you being poor in cash. Carryover balance is great for the lender as they charge so much interest, but to the credit bureau, it reports the inability to pay off.
This is an indicator of how much you owe on your accounts. The amount you owe lenders is one of the most important factors that impact your credit and makes up about 30% of your FICO Score. The revolving utilization score is determined by:
- The total credit limit
- The total balance owed on your revolving accounts
For instance, if you have a total credit limit of $30,000 and you have used up $22,136 that means you have a revolving utilization rate of 69% of your total credit limit.
TIP – Using most of your available credit is a sign of very high risk and that is considered poor. The total balance on your last statement is generally the amount that will show in your credit report, even if you pay in full each month.
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How to Build Credit Score
When you apply for a job you provide a resume with listed experiences, this gives an overview of what you can do. The same principle with this section of the credit report, it essentially reports your past credit behavior. Creditors want to know you can be responsible and managing a mix of different loans, showcases your ability. This makes up to 10% of your total score. The FICO calculation accesses the type of credit as either installment loans or revolving accounts.
With this type of loan, you borrow the money once and pay it off over a period of time. This type of loan includes auto loans, student loans, or mortgages.
This type includes accounts such as a credit card, or department store cards. The main purpose or definition is that the loan is always available, you keep borrowing as long as you can repay your creditor according to the terms.
Be mindful of other factors regardless of the type of loan it is, it all boils down to you owing the lender money and rules can easily change. They make money off you and the longer you are in debt the better for your creditors, as your debt generates revenues.
TIP – Generally, opening new credit accounts that you do not need, will not necessarily improve your score. Do the research before opening.
Length of Credit
Just like when applying for a job, the more years of experience you have the more leverage you have when it comes to the position and salary negotiation. The same principle is applicable here. The longer the credit history you have, the better. The length of your credit history makes a great impact when it comes to calculating your score, which is 15%
In addition to the length of your credit, below are some points taken into consideration:
- The age of your oldest credit account
- The age of your newest credit account
- The average age of all of your credit account
TIP – Even though you pay off your credit cards, it is best to keep the oldest card open. I would suggest a credit card that does not have an annual fee.
This makes about 10% of your score.
This is one of the most known factors that can harm your score. There are two forms of it, either hard or soft inquiry. There are two types of inquiries, a hard inquiry is when a creditor pulls up your credit, (of course this is to verify if you are credit-worthy) and a soft inquiry is when you pull your own credit report, usually, there is no fee associated if you pull it once a year. There are many websites that offer that service, be sure you are pulling from a credit worth source such as Credit Karma, or Annual Report.
TIP – You generally do not want to have many inquiries made on your account. Hard inquiries made by a lender, can only be done with your permission. Therefore, be careful of what you give your consent to and state when your authorization to pull your credit report expires.
This makes at least 35% of your score.
Well, this one drives the score and if you miss a payment, it will severely bring it down.
Consistently paying creditors on time is the most important factor in determining your credit score The calculation is based on the number of accounts with missed payments over the length of your credit and below are the determining factors:
- Amounts owed on delinquent accounts
- Collections and negative public record information, such as tax liens, repossessions, charged-off accounts
TIP – This is a well-known factor that, paying your bills on time demonstrates a good payment history. The total balance on your last statement is generally the amount that will show in your credit report, even if you pay in full each month.
Due to the increasing cases of fraud, most of us live in a state of constant concern what if my financial details are leaked or the recourse of such invasion. I was personally affected when there was an Experian Data Breach, the worst part of the whole process was the mundane responses I kept getting and not a full answer whether I was protected. Luckily, no financial damage was done, but that led me to investigate other options for protecting myself. The list below is not exhaustive but surely a start.
Ways to Protect Your Credit Score
Pulling Up Your Credit Report
The first option would be to pull your credit report, this will give you an overview of exactly what you owe and or other mistakes that are being reported. If you identify an error, you do have the right to dispute and the credit bureaus have 30 days to resolve the dispute, if no response in 30 days, then by law they should remove it. As I stated earlier, you do have the right to pull up your credit and Free Annual Credit and Credit Karma you can pull it once a year free of charge.
Having Several Alerts from Your Accounts
There are many ways banks or financial institutions are offering services that protect their customers. This has personally become handy as I have experienced unauthorized usages. I was able to have the charges removed. I have alerts of transactions that are over a dollar, therefore, I monitor all transactions coming through. In addition, my bank contacts me if there is a suspicious charge and I have me confirm if its a true transaction, if not it gets declined. Contact your financial institution and activate alerts that offer more protection on your account.
Black Market Social Security Number Scanning
There other services that are currently being offered, such as having your social security being scanned to see if it is on the black market. Information stolen is grouped into various categories and prices. Some banks and credit bureau’s have services that offer to scan your social security number. Conduct detailed research and understand the requirements, the best approach, would be to do it with a trusted financial institution, such as your and not just another website.
Separate Bank Accounts
Due to my personal exposure as a victim of financial fraud, I have since changed my banking habits. I have different bank accounts with different banks. That includes a household account that solely deals with paying bills and all other transactions. I transfer funds each month (or when needed) from my Bank A to Bank B. If my household account is affected, at least I will not suffer loses beyond the balance in that account as it does not have more than what I need in a month.
The same principle when it comes to credit cards I use only one when doing online shopping. To take further measures, I have a PayPal account where that one credit card is attached to, therefore all my online shopping is processed through PayPal. The reason I favor this method, its because my credit information is not scattered everywhere and it is easier to monitor. The card attached to PayPal has a lower credit limit than my other one.
Freezing Your Account
This is probably the best one, especially for those fraudulent activities where criminals need to access your credit. The premise of it is that you can freeze your social security number with all 3 credit bureaus. No one can process or apply for credit under your social security number without your permission. If you want to apply for a loan, you have to unfreeze your social security number and provide the date you want them to freeze it back. Usually, there is a fee to unfreeze, the best approach would be to unfreeze all of them since you do not know which report the company is going to use.
This option has surely provided me with the most security and peace of mind, especially knowing for any credit applications, the credit bureaus have to first secure and process my passwords before unfreezing my credit.
The above methods are not exhaustive but they have surely given me a sense of control and know-how and what to monitor.
Top Credit Score Questions
Can I check my Credit Score For Free?
Yes you can check your credit card for free once year. Just make sure that the free credit report has all 3 credit bureaus listed.m, which are Equifax, TransUnion and Experian. You can pull your free credit from the link below:
What is Considered a Good Score?
Credit score has three digits and and determines if your are credit worthy to borrow money. The higher your score, the more trustworthy you are and more likely to get cheaper rates. Below are the different credit score categories:
|Poor||300 – 579|
|Fair||580 – 669|
|Good||670 – 739|
|Very Good||740 – 799|
|Exceptional||800 – 850|
How Can I Quickly Raise My Credit Score?
The best way to raise your credit score is to pay off debt as quickly as possible. It is best to start with debt that you can completely payoff as it will be reposted as paid off on your credit report and this raises your score. Below are some tips to consider
- Make an extra payment each month
- Implement debt repayment method such as snowball
- Refinance your debt in order to save money on interest
- Carefully use balance transfer process
You can get all your 3 reports from the link below. Additionally, you can access your free report once a year, thereafter there is usually a fee associated. https://www.
Can I Buy a House with 661 Credit Score?
A 661 credit score is considered to be fair rating and most lenders approve mortgages with that score.
Before applying for a loan, make sure to conduct your research and confirm with your desired lender which credit score they normally approve for, once that’s done you can implement tips to quickly increase your credit score.
Read this article on How to Increase Your Credit Score:
How Is Credit Score Calculated?
Credit score is also referred to as FICO score, which a 3 digit that ranges from 300 to 800. The higher the score, the more credit worthiness you are and more likely to get approved.
Below are the requirements needed to calculate your FICO Score
Payment History 35% : The best way to manage this section is to pay your bills on time and the worse case scenario is not to go past 30 days late. The longer it goes past the due dates, the worst it becomes, for instance 60 days past due is worse than 30 days past due.
Amount Owed = 30% : The best way to manage this option is not to owe over 30% of your total balance. For instance if you have a $1000 x 30% = $300. The best option to manage your credit under this section would be to not go above $300.
Length of Credit = 10% : The longer your credit history is, the better. The best way to manage this section, would be to payoff account but do not close them. Be mindful of the credit cards that are paid off and still open, if they are not used in certain time frame the credit card company may close it. Therefore, it is best to rotate your credit card usage.
New Credit = 15% : If you are in the process of trying to use your credit, opening many new accounts is a sure way to decrease your score. The best manage to process would be to have credit cards or loans that actually benefit you. For instance, get a credit card that has great benefits, such as cash back, mileage or any other service that is to your advantage.
Credit Mix = 10% : There are different types of loans and the more different they are, the best it is for your score. Some of the types loans include cards, retail accounts, installment loans, finance company accounts and mortgage loans.
You do not have to apply for all loans, but a mixture of them would serve you best
Why is Credit Score so Important?
The higher your credit score the better it is easier to get approved for any loans you may apply for. In addition to applying for loans, your credit score is now used by fellow employers to determine if you are an approved job candidate.
How Can I Wipe my Credit Clean?
The best way to clean your credit clean is to first pull all your 3 credit scores and dispute any errors. The second thing would be decrease and work towards on paying off any outstanding balance. The third step would be to learn how to manage your credit score and constantly adjust accordingly. Read question # 7 for am how to manage your credit.
Can You Cheat Your Credit Score?
You cannot cheat on your credit score, but you can apply tips and tools that may help you to quickly raise it.
Honestly, there are many different methods on how to improve and secure your credit score, but the most important aspect is getting yourself educated on the most basics statics and start applying them. Securing your credit can easily help to mitigate and protect you from external threats such as identity theft while understanding how your credit score works in improving your score and ultimately help you save money.
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