How Credit Score Ranges Matter

January 8, 2022CreditBy toptierfinancial

How Credit Score Ranges Matter - PinterestFinancial and lending institutions use credit scores to determine how likely someone is to repay a loan. According to FICO, the average credit score in the United States stands at 716, but that number varies significantly by state. Credit scores range from 300 to 850, and each number corresponds to a different level of credit risk.

A high credit score means you’re a low-risk borrower, which could lead to lower interest rates on loans and other lines of credit. On the other hand, low credit scores could mean higher interest rates and a greater chance of not being approved for a loan.

While most people know they have credit scores, they may not understand why these score numbers matter or how they are determined. Read on as we explore how different credit score ranges map to financial situations and tips on how you can improve your credit score.

What Credit Score Ranges Should Mean To You

Different credit score ranges correspond to varying levels of risk. Knowing your credit score is incredibly helpful when it comes to determining whether you will qualify for a loan or credit card.

Credit card companies and lenders use credit scores to determine your loan qualification, credit limit, and applicable interest rate. Lenders often give more appealing interest rates to people with high credit scores because there is a lower chance of the debt not being repaid by the borrower.

Since people with low credit scores are considered high-risk borrowers, they may have trouble getting approved for various financial products, including personal and credit cards. As a result, they could be charged higher interest rates or denied credit entirely.

What Are the Credit Score Ranges?

Credit scoring companies like FICO use multiple credit scoring models to determine your credit score. FICO scores dominate the market, and the most popular versions range from 300-850, with each number indicating how likely you are to be a responsible borrower. Below are the different credit score ranges and what they represent financially:

FICO credit score ranges

Commonly used FICO credit scores range from 300 to 850.

Exceptional 800-850

Consumers with exceptional credit scores have consistently excellent credit usage behavior. They have low balances on their credit card accounts, maintain their credit utilization ratios around 10% or lower, and have a long history (decades) of on-time monthly payments. Borrowers within this range are offered higher credit limits and can qualify for lower rates on personal loans, credit cards, lines of credit, and mortgages.

The highest possible credit score you can have on the FICO scoring system is 850. While it is possible to obtain a perfect 850 credit score, it is not necessary to do so in order to get the best credit offers, nor is it a practical goal. Getting an 850 credit score requires that every single credit scoring factor must be perfect, which is simply not possible for most consumers.

Home mortgage credit score range

Consumers with credit score ranges that are very good or exceptional will get the best interest rates on mortgages and other loans.

Very Good 740-799

A score between 740 and 799 is in the very good credit range. These borrowers generally have good financial responsibility regarding credit and money management. They have lower credit utilization ratios, a good history of on-time payments, and few derogatory marks on their credit reports.

Most lenders are still comfortable extending lines of credit to these borrowers, so people within this range are likely to get approved for loans and other products with favorable interest rates.

Good 670-739

A FICO score falling between 670 and 739 is considered a good credit score. The national average credit score stands in this range. This score indicates that you have generally been responsible with credit in the past and paid your bills on time. You may qualify for average rates, but it may become more difficult to be approved for some types of credit. You’ll likely have to shop around in order to find the best interest rates.

Fair 580-669

Individuals with credit scores within this range are below the national average and may have negative marks on their credit reports. If you have a FICO score in this range, you’ve likely missed payments or shown signs of high credit usage and delinquencies. This means you may not qualify for some types of credit, such as loans or credit cards. Few lenders will likely extend a credit line to you but offer high-interest rates.

Poor 300-580

This range is the lowest credit score rating on credit reports and is considered to be very bad credit. People with a FICO score in this range are seen as high-risk borrowers and may be unable to get approved for loans, lines of credit, or mortgages. They have several cases of missed payments, high balances, and high credit utilization ratios. Poor credit scores may also result from filing bankruptcy or having debt in collections.

Credit invisible

“Credit invisibles” are those who do not have a credit score, which can be equally as problematic as having bad credit.

No Credit Score

It is possible to not have a credit score at all, which is known as being credit invisible. If you haven’t had a loan or credit card for several years, your credit score may not be able to be calculated because there is insufficient information on your credit reports.

Lenders may still allow you access to credit based on your other assets, but it usually requires additional verification of your assets and income.

How To Build Credit & Earn A Better Credit Score

Building and improving your credit score can be a challenging but rewarding experience. Your credit score will increase your access to financing products with lower interest rates and fees on everything from loans to mortgages. Below are some tips that can help improve your score:

Make all of your monthly payments on time – One of the most significant factors that go into calculating your credit score is your payment history. A history of on-time payments will help boost your credit score. If you miss payments, this can be reported to credit reporting agencies and damage your credit score.

Pay more than the minimum payment – By only making the minimum payment each month, you make it easier for yourself to accumulate more and more debt. Not paying your balance in full also increases your utilization ratio, which impacts your score negatively the higher your utilization becomes. Focus on paying off as much of the balance as possible each month.

Keep credit card balances low – Again, carrying large balances negatively impacts your credit score, so it is important to consistently keep your balances low if you can. If you have large outstanding credit card balances on your accounts compared to your available credit, lenders are also more reluctant to give you a new line of credit because they may view you as financially over-extended.

Wallet with credit cards

Keeping your credit cards open while maintaining low balances helps your credit utilization and, by extension, your credit score.

Keep your credit cards open – Closing a credit card account can hurt your credit score because you no longer get the benefit of its credit limit. Keeping your credit cards open even if you are not using them much allows the cards to help out your credit utilization metrics, boosting your credit scores.

Only apply for credit when you need it – Each time you apply for a new loan or credit card, lenders check your credit report, which results in a hard inquiry being added to your credit report. Having too many hard inquiries within the past year can impact your score negatively. If lenders see a lot of inquiries in your credit history, they may be concerned that you are taking on too much new debt and might not be able to make all of your payments on time.

Why You Should Never Trust a CPN to Boost a Credit Score Range

If you’re looking to boost or reset your credit score and come across a company that offers Credit Privacy Numbers (CPN), it’s best to stay away. A CPN is a nine-digit fake or stolen Social Security number that credit repair companies sell to people who want to repair their credit scores.

These companies instruct you to use the CPN in place of your Social Security Number when applying for credit. CPNs are generated randomly or stolen Social Security numbers, mostly from children, inmates, and senior citizens. Using a CPN is illegal, and when caught, you can face a hefty fine or even jail time.

Using a CPN instead of a stolen Social Security number, you may be committing an identity theft crime. Depending on your state and the statute of limitations, you could be jailed for a maximum of 15 years and face thousands in fines. Using a CPN to reset or boost your credit score is not worth the risk.

7 Fast Credit Building Strategies to Influence Your Credit Score Range

Credit scores have become an essential part of today’s society. It’s no longer just used for loan applications. Employers and landlords may also ask to review your credit score or credit history. In some cases, you may not get access to housing, utilities, or insurance if you have a low credit score.

If your credit score isn’t your ideal number, or is below the average credit score, there are several things you can do to help increase it. Here are seven fast strategies to help improve your credit score range:

1. Develop Your Credit File

Creating a positive credit file is the first step in building credit. This can be done by opening a credit line that is reported to the major credit bureaus. If you make on-time monthly payments and keep your revolving utilization ratio below 30%, this demonstration of good credit behavior will increase your credit score and, in turn, boost your credit score range. Higher credit scores will open doors to better financing options and lower rates.

2. Check Your Credit Reports

When building your credit score range, it’s critical to check your credit reports to know where you stand.

As mandated by the Fair Credit Reporting Act (FCRA), you can get your credit report for free once a year from each of the three credit bureaus. Additionally, during the COVID pandemic, the credit bureaus have volunteered to provide free credit reports to everyone on a weekly basis. This 

Review each credit report for inaccurate information and dispute errors as necessary.

3. Dispute Credit Report Errors

Your credit score can be significantly lowered if your credit report contains erroneous negative items. However, the credit bureaus can be contacted if any errors are found. Your dispute letter must be investigated and responded to by the credit bureau within 30 days. If you find the information to be inaccurate, you can request that it be removed or corrected on your credit report.

4. Pay Your Bills on Time

Payment history is the most critical factor in your credit score, accounting for 35% of your score. No credit-building strategy will be effective if you do not consistently pay your bills on time. Late payments can remain on your credit report for up to seven years.

If you do this successfully, having a long history of on-time bill payments will help you achieve excellent credit scores. To avoid accidental missing or late payments, you can set up reminder notifications and automatic bill payments with your lenders.

5. Increase Your Credit Limit

Paying off credit cards and other revolving accounts may help boost your credit score range, but having a high amount of available credit will add points to your score. Consider increasing the limit on your lines of credit to decrease your utilization ratio. An ideal time to do this is after building up a history of responsible credit usage or when you have started a better-paying job.

According to the Consumer Financial Protection Bureau, your payment history, credit mix, debt owed, and length of your credit history are some important credit factors a credit card issuer will look at when determining your credit limits.

6. Catch Up on Delinquencies and Past Due Accounts

If you have missed payments in the past, try to resolve them as soon as possible. Bringing your delinquent accounts current will help improve your credit score, and paying off collections may help your score depending on which credit scoring model is used.

Since most negative information like late payments remains on your credit report for seven years, it’s important to start repairing your credit history as soon as possible.

If you have trouble with credit card debt, consider talking to a credit counselor to create a debt management plan. They may be able to negotiate lower monthly payments and interest with your creditors and help you pay off old collection accounts faster. Some may even work to get these negative marks removed from your report.

7. Get a Secured Credit Card

If you are just starting out or have had credit problems in the past, applying for a secured card can help you improve your credit score. When you apply for a secured card, you make a security deposit that the issuer will use as collateral if you are unable to pay.

Monthly payments on a secured credit card will help build your credit score. You should look for secured cards that report to all three major credit bureaus in order to take advantage of the credit-building benefits of credit cards.

The Dollar Differences in Credit Score Ranges
Dollar cost of low credit score ranges

The difference between good credit and bad credit can add up to thousands of dollars of interest over your lifetime.

The higher your credit score range, the less risk you pose to lenders and the more likely you are to be approved for a loan with a lower interest rate.

For this reason, having a good credit score can save you thousands of dollars in interest costs.

However, those with low credit scores will have trouble getting approved for a loan, and those who do may be required to pay a higher interest rate to offset the increased risk of lending. Therefore, having a low credit score means you pay more for financing big-ticket items like a car or a home.

Why You Should Share What You Learned About a Credit Score’s Range

Sharing your knowledge about credit score ranges will help people understand the importance of maintaining a good credit score. To get financing for big-ticket items or a dream home, your credit score must reflect your financial responsibility. In the long run, consumers will save money and have easier access to credit when they have a history of good credit habits. 

For lenders to feel confident that you are financially responsible, you should maintain a good credit mix of accounts including a checking account, savings account, and an investment portfolio.

Follow the credit tips above, such as maintaining a low credit utilization rate, making on-time payments, and not opening too many accounts at one time so that you can maintain a good credit score.

Conclusions on Credit Score Ranges

It’s important to understand credit score ranges and realize that they are a reflection of your creditworthiness. 

Positive credit habits can open doors to financial opportunities that you would not be able to access otherwise, so start building up your credit history and credit scores now. Finally, make sure to keep up your good credit habits consistently to set yourself up for financial success in the future.

Read more: tradelinesupply.com

Read more

Master Credit-Building in Less Than 7 Minutes

December 24, 2021CreditBy toptierfinancial

Master Credit-Building in Less Than 7 Minutes - PinterestA credit score is a three-digit number that can greatly impact your life. 

The seemingly small number reflects a measure of your creditworthiness, which can have an outsized effect on your finances. A good credit score can unlock a lower interest rate on long-term loans, which could save you thousands. But a bad credit score could bar you from accessing affordable loans for major purchases such as a home or car. 

Clearly, your credit score is important. We’ll talk about just how essential below. But how can you build credit? We’ll also cover the best strategies to give your credit score the boost it needs.  

What Is Credit-Building?

Credit-building employs strategies to improve your credit score. Wherever your credit score currently stands, credit-building can help you take it to the next level. 

The goal of credit-building is to create a history of responsible credit usage. That means opening credit accounts and making on-time payments to keep these accounts in good standing. 

To start, building credit can be as simple as that—making on-time payments to your accounts. The only downside is that it can take time to create a solid payment history for your credit report. In fact, it takes around two years for a credit account to be ‘seasoned.’ Seasoned accounts have enough age to show potential lenders that you can responsibly manage your credit. With multiple seasoned accounts on your report, your credit score should increase. 

Although it takes time to build good credit, the steady approach of making on-time payments to your accounts will pay off. 

Credit-Building vs. Credit Repair

Credit-building and credit repair both have the same goal of increasing your credit score. But each path has a different strategy for success. 

Here’s a closer look at each option. 

Credit Repair

Credit repair should be the first step if you have a bad credit score. 

Generally, credit repair involves addressing any existing negative activity on your credit report. Negative activity could stem from errors on your credit report or a case of identity theft. The process starts by pulling a free copy of your credit report and looking for any bad marks. 

For example, you might see inaccurate information about a bill sent to collections on your credit report. In that case, you can dispute the record to have it updated or removed from your credit report. 

A bad credit score could make a credit repair agency a tempting option. Typically, the operation works by going through your credit report for you to root out any errors. 

Although you can pay for this service, it is possible to tackle credit repair on your own. It will take some time and energy. But you can track down your credit report and take steps to correct any errors you find. 

You can learn more about your credit repair options with Tradeline Supply Company, LLC. 

Credit-Building

While the focus of credit repair is to remove negative information, on the other hand, credit-building is focused on adding positive information to your credit report. Whether you don’t have a credit history of any kind or if you have a bad credit score, credit-building is the right move. 

Essentially, building credit is accomplished by obtaining a line of credit to pay back on time. As you create a history of responsible credit management with consistent on-time payments, you will build your credit history. 

No Credit vs. Bad Credit: Which is Worse?

When it comes to credit scores, there are good scores and bad scores. 

Here’s the breakdown of credit scores on a scale of poor to excellent:

Poor: 300 to 579.

Fair: 580 to 669. 

Good: 670 to 739. 

Very good: 740 to 799. 

Excellent: 800 to 850. 

Credit score rating scale: poor to excellent

Most commonly used credit scores range from 300 to 850.

If you have a credit score, you’ll be able to find out where you fall on the scale. But what if you don’t have any credit at all? Is it better to have a bad credit score? Or are you better off with no credit score at all?

In general, it is easier to achieve a good credit score if you are starting from scratch. That’s because you will not have negative marks on your nonexistent credit report to address. With that, you can jump straight into building credit. 

If you have a bad credit score, though, you’ll need to start credit repair before credit-building. If you have a bad credit score due to multiple errors on your report, then working on credit repair should give your credit score a big boost. In that case, the process of credit repair might be faster than credit-building. But if you have legitimate financial mistakes on your credit report that have led to a poor credit score, then it will likely take more time to improve your credit score. 

It will take some work to improve your bad or nonexistent credit score in either situation. The details of your credit report will determine whether it is preferable to have a bad credit score or no credit at all. 

A Fast Tour Through the Stages of Building Credit

The good news is that you can build credit from wherever you are starting. Here’s a fast tour of the stages of credit-building. 

Check Your Credit Report

If you have a credit history of any kind, the first step should be to check your credit report.

When you have your free copy, check it over for errors and mistakes. A few things to watch for include incorrect balances and incorrect payment dates. You may or may not find any mistakes. But if you do, dispute the error with the credit bureaus or the company sending the information to the credit bureaus. 

If the error is removed, your credit score could see a boost. If you don’t find any errors, this step will still help you understand where you are starting from in terms of your credit history.

Worker in business office

Bringing in a consistent income is an important consideration when you are applying for credit.

If you don’t have a credit history yet, you should not have a credit report, but it’s a good idea to check anyway. If you discover that you do have a credit report despite never having credit, this is an indication that someone has fraudulently opened credit accounts in your name, and you will need to address the theft of your identity and the fraudulent accounts.

Maintain a Steady Income

An income is not a part of your credit score. But your income will play a big role in your ability to borrow money and repay your debts in full and on time. Without the option to borrow money, it can be almost impossible to build credit. 

Borrow Funds

With a steady income, you may be able to take out a line of credit of some kind. Taking out a loan, line of credit, or credit card is a critical part of building credit. Otherwise, lenders won’t be able to discern how you manage your payments. 

Two popular credit-building choices for those with no prior credit history include a secured credit card or a credit-builder loan. 

Use Credit Responsibly 

No matter how you choose to borrow the funds, the most important thing is to manage your credit obligations responsibly. In order to build your credit, you need to be able to demonstrate to lenders that you have a consistent pattern of responsibly using credit. 

As you build a history of responsible credit usage, you will inch closer to your goal of having a good credit score. 

Why Credit Scores Matter: Good Credit And Bad Credit Money Differences

It will take time and effort to build a good credit score. Is it worth the effort? 

For most people, the answer is a resounding yes! A good credit score can have a big impact on your overall financial picture. If you have a bad credit score or lack a credit score, you could be missing out on big savings opportunities, or you could be missing out on opportunities to borrow money in the first place.

Home mortgage loan

Most consumers need to take out a mortgage to be able to buy a house, which is much easier to do if you have a good credit score.

Big Purchases

With a better credit score, you are poised to take advantage of loans for big-ticket items with reasonable interest rates. 

Let’s say that you want to take out a loan to achieve your dream of homeownership, as the majority of home buyers do not have the cash to pay for such a large expense outright. Your credit score will impact whether or not you are approved for the loan and decide what interest rate is attached if you do get approved. 

In this scenario, a good credit score could make the difference between becoming a homeowner or not. In addition, a good credit score could save you thousands of dollars in interest over the life of the loan. 

Insurance Savings
Home insurance

Those with higher credit scores benefit from lower insurance premiums.

A good credit score could impact your insurance premiums in some states. This is because insurance credit scores have been shown to correlate with a consumer’s likelihood of filing an insurance claim.

In fact, a recent WalletHub survey found that people with no credit pay 67% more for car insurance than people with excellent credit. 

Imagine how quickly those costs add up when you have to pay a higher premium every month!

Credit Card Perks

When used responsibly, a credit card can be an extremely valuable financial tool. But if you have a bad credit score, you could be stuck with a credit card for bad credit that offers no perks and a sky-high APR. 

In contrast, a good credit score can open the door to many credit card options that come with helpful perks. For example, you might find a cashback opportunity or built-in savings when you use the card, as well as other benefits. 

What Lenders Want to See in Your Credit History

As you build your credit history, you might wonder what lenders are looking for in a creditworthy customer. Although there is no hard and fast rule, since each lender has their own underwriting process, the breakdown of a credit score gives us insight into the most important characteristics that lenders generally want to see when evaluating your credit profile.

Wallet with credit cards

Credit card perks such as cash back are typically reserved for consumers who have high credit scores.

Payment History

Payment history accounts for 35% of your credit score. In other words, on-time payments represent a critical component of your credit score. Lenders want to feel confident that you make it a priority to repay your debts so that they will not incur a financial loss by extending credit to you.

Even one missed payment can make a serious dent in your credit score, so do not take this category lightly. Making your payments on time 100% of the time is the most important thing you can do to earn a good credit score. 

Credit Utilization

Your credit utilization rate represents 30% of your credit score. Your credit utilization rate, also referred to as your utilization ratio, revolving utilization, or your debt-to-credit ratio, measures how much debt you owe on your revolving accounts compared to the amount of revolving credit you have available. 

A lower overall utilization rate will result in a better credit score, meaning that lenders will be looking to see how you manage your balances relative to your credit limits. Using too much of your available credit shows that you are a greater credit risk and lenders will be less likely to be willing to work with you.

Furthermore, having too many accounts with balances can also hurt your credit score.

Length of Credit History

Lenders want to know that you are someone they can count on to repay their funds consistently over time. To that end, they’ll be looking to see how long you’ve been able to manage your credit accounts responsibly.

Your actual age is not considered in this, but older consumers do tend to have longer credit histories simply because they have had more time in their adult life to accumulate credit accounts and make on-time payments. In order to improve this factor, all consumers can do is open accounts early on and wait for their accounts to age while diligently making payments and managing their balances.

This factor accounts for 15% of your credit score, but in reality, it is far more important than it seems on the surface because more credit age also means more on-time payments in your payment history, which adds another 35% of your score.

Credit Mix

Your mix of credit is determined by the types of accounts you have open. In general, lenders want to see examples of both revolving lines of credit (e.g. credit cards) and installment loans (student loans, auto loans, personal loans, mortgages, etc.) on your credit report. 

This factor accounts for 10% of your credit score.

Learn more about account types and account diversity in our credit mix infographic.

New Credit

Last but not least, credit inquiries account for the final 10% of your credit profile. Hard inquiries appear on your credit report when lenders check your credit when you are looking to open a new credit account with them.

Creditors don’t want to see very many of these hard credit inquiries acquired within the past year. Having too many credit inquiries could be a red flag because it shows that you are seeking a lot of new credit and may not be in the best financial position to pay your bills.

Keep in mind that soft inquiries, which occur when you check your own credit report and other situations when your credit is pulled for something other than a lending decision, are not seen by lenders and are not considered in credit scores.

7 Epic Credit-Building Master Moves

Now it’s time to tackle your credit-building goals. Here are seven strategies to help you take your credit to the next level in no time. 

Become an Authorized User

A trusted friend or family member may be able to add you to their credit account as an authorized user. As an authorized user, your credit report will reflect the credit limit and reliable payment history of the account. 

If you don’t have someone you can ask to become an authorized user, other options are available. You can purchase accounts with high limits and perfect payment histories from Tradeline Supply Company, LLC. 

Open a Joint Line of Credit

Opening a joint line of credit can be a helpful step in your credit-building journey. If you have someone to manage your finances with, a joint line of credit can provide an opportunity for you to build credit along with the joint account holder.

However, there are some downsides to joint lines of credit. They are not available with all lenders, and if you do choose to open a joint account with someone, you may not be able to remove the joint account holder if the relationship sours. 

Consider a Secured Credit Card

A secured credit card requires an upfront cash deposit to mitigate financial risk to the lender in case you do not pay your bill. In most cases, the deposit is equal to your credit limit. So, if you deposit $1500, your spending limit will likely be $1500.

Since secured credit cards typically have low credit limits, you will want to keep your balances low so that your credit report does not show a high utilization rate.

If you are just getting started with credit, a secured credit card can be a good way to get the ball rolling. 

Set Up Automatic Bill Payments
Automatic bill pay calendar on computer

Setting up automated bill payments on your credit cards can help you avoid getting negative marks on your credit report.

If you open any lines of credit, it is critical that you make on-time payments in order to build up a positive credit history. A good way to ensure that you always make on-time payments is to set up automatic bill payments. With an automatic payment system in place, you won’t have to worry about missing a payment and hurting your credit score.

But even with automatic payments, it is a good idea to check out your bills each month to keep an eye on your spending as well as any potentially fraudulent charges.

Increase Your Credit Limit

If you already have existing credit cards, then consider asking your credit card provider for an increased credit limit. You will effectively lower your credit utilization rate with an increased credit limit. With a lower credit utilization rate, you might see an increase in your credit score. 

Pay Off Existing Debt

On the flip side, you can also lower your credit utilization rate by paying off any existing debt you currently have. Although paying off debt is never easy, it could provide the credit score increase you’ve been looking for. 

Want tips on paying off debt? See our article on the debt snowball method vs. the debt avalanche method.

Get Credit For Your Bills

Did you know that you can get credit for some of the bills you already pay? There are alternative credit data services out there designed to add your utility, rent, and subscription payments to your credit report. 

For example, Experian Boost, eCredable Lift, and RentReporters can help you get credit for the bills you already pay on time. If you pay your bills on time, having that information on your credit report could boost your credit score. 

Fighting Credit Misinformation

According to Possible, 4 in 7 Americans are financially illiterate, so it should come as no surprise that many Americans are mystified by their credit score. Not only that, but many believe in detrimental credit myths, leading to poor credit choices due to misinformation.  

If you are working with someone to build their credit, you may have to work through some deeply embedded credit score myths. For example, you might hear that checking your credit score lowers your credit score. But that is completely inaccurate. Other common myths include the belief that carrying a balance will boost your credit score or the idea that your credit score doesn’t matter to your personal finances. 

As you dive into the process of building credit, utilize reliable resources to learn more about good credit practices and take action to help you reach the credit score of your dreams. 

The Bottom Line: Credit-Building Is Achievable 

A good credit score can open a world of financial possibilities such as low-interest loans on major purchases, valuable credit card perks, lower insurance premiums, lower security deposits, and more. Although the process of building good credit will take time, it is an achievable goal no matter where you are starting from. 

 

Want to learn more about your credit? Take advantage of the free resources offered by Tradeline Supply Company, LLC.

Read more: tradelinesupply.com

Read more

Ask an Expert: How Do I Build Good Credit From Scratch?

February 6, 2021CreditBy toptierfinancial

The NFCC often receives readers questions asking us what they should do in their money situation. We pick some to share that others could be asking themselves and hope to help many in sharing these answers. If you have a question, please submit it on our Ask an Expert page here.

This week’s question: I need some advice in regards to my credit report and good ways that I can begin to build up my credit. I have no credit at all. Eventually within five years once I’m out of school I want to buy a house.

Building credit from scratch will take some time and effort, just like getting a job after graduating from school. You can think about good credit as a means to an end: you need good credit to finance big purchases and get the best interest rates and repayment terms on loans and mortgages. So, getting your credit ready is an excellent start to buying a home in the near future.

What is on Your Credit Report? 

Your credit is a record of your monthly financial credit transactions. Your creditors report your activity to the three credit bureaus, Equifax, Experian, and TransUnion, and they use that data to generate a credit score. Your credit report also includes your personally identifying information such as your name, addresses, social security, and some public records such as bankruptcies and judgments and tax liens, if you have any. To start generating data for your credit report, you need to get a credit line. The easiest way to do that is to get a secured credit card. Many banking institutions issue secured credit cards, and they work pretty much like a regular credit card. The main difference is that these cards are backed by a cash deposit, which usually corresponds to the card’s credit limit.

Be Strategic

Learning how to use your credit card strategically is equally as important as getting that credit line. Your credit score takes into consideration several factors. The factor that influences your score the most is whether you pay your accounts on time and as agreed. Late or insufficient payments are very detrimental to your credit history. So, you should plan to pay in full and before your due date. Another important factor is your utilization ratio, which is how much you owe compared to your available credit. To have a balanced ratio, experts recommend that you use only 30% or less of your available credit in every billing cycle. For instance, if you have a $500 credit limit, you should be using less than $150.

Yet another factor is the age of your credit history. The older your credit history, the more history and data you’ll have to establish a solid credit history. Achieving this will just require time and your continued effort. The other two factors to keep in mind are the mix of credit you have (credit cards and loans) and how often you ask for new credit. Too many new credit inquiries reflect negatively on your score, so it’s important that you only apply for new credit sporadically. In your case, you should keep your secured credit card for at least a year before applying for a regular credit card. In some cases, your creditor may even upgrade your secured credit card to a regular one and return your cash deposit.

It’s never too soon to start building your credit. And once you learn healthy credit management habits, it will be very easy for you to manage your credit and use your credit cards responsibly on a daily basis. If you feel you need additional guidance or personalized help to get you started, you can always reach out to an NFCC Certified Financial Counselor. They are ready to help over the phone, online, and in-person if it’s available in your state. Good luck!

The post Ask an Expert: How Do I Build Good Credit From Scratch? appeared first on NFCC.

Read more: nfcc.org

Read more

Do you need good credit to start a business?

September 8, 2020CreditBy toptierfinancial

A lot of time, effort, and energy go into starting a business. Typically, you have to map out a business plan, prepare a variety of business and legal documents, and maybe even hire other people. This can take a lot of planning and careful consideration. In addition to these steps, you also want to set up your business for financial success. An important question you may be asking yourself at the outset of this new venture is “Do I need good credit to start a business?” The technical answer is “no.” You can start a business without good credit. The long answer is that good credit will enable you to do more with your business, potentially allowing you to scale and grow your business more quickly and with less risk.

No Credit Requirement at the Outset

The act of starting your business may not involve credit at all. This will depend upon your business plan and the type of service or goods you will be provided, along with the expenses you will encounter and the capital you have available when you start. But just as an example, a simple service-based business (like, say, a solo web designer) could be formed and function without credit.

Truly “starting” a business boils down to choosing your name, selecting your entity type, filling out the basic forms, and applying for any licenses required by your selections. The Small Business Administration has tips for each of these tasks. If you create a business that is a new separate entity (like an LLC, for example) you will definitely want to open a business bank account so that you can keep the business’ funds separate from your personal funds. Sole proprietors and partnerships can do this too, but it may not be as legally urgent as for other business types. The bank account can be a simple business checking account without any accompanying credit lines. If so, approval should be fairly easy and not require a strong credit history.

These steps alone may be sufficient for small, simple businesses to get up and running. If your business is more complex and needs more capital than currently available at the time you start the business, then credit may be necessary from the start.

Business Credit Can Help You Grow or It Can Hold You Back

Launch and scale: Credit can be essential for some businesses, and the core business idea may never come to fruition without credit. Even if a business does get off the ground without credit, it may not be able to adapt and take advantage of critical opportunities. Say a rare business opportunity becomes available—a new partnership, or the chance to get into a new market, for example. These moves often require more capital. Being able to quickly access more funding through a credit line could be a game-changer. Unfortunately, the SBA reports that in one survey, 27 percent of respondents said that they did have the funding to adequately support and grow their business. You do not want to be in that position when a rare opportunity presents itself.

Extra benefits: We have been talking about business credit in a general sense but one unique benefit of credit cards is the fact that many offer rewards. If your business has significant expenses, and you can put most of them on credit cards, you have the potential to rack up a lot of credit card rewards. Of course, you will want to pay the balances in full and avoid interest costs. But if you can do that, then the rewards can effectively become increased profits for your business. The rewards might even provide new equipment for your business to help it grow while not costing you anything out-of-pocket.

Increased separation from personal credit: We touched on this before when discussing bank accounts, but you will want to build a separation between your personal financial identity and your business financial identity. In some cases, this is legally essential for bank accounts to ensure that you do not “commingle” funds. But a similar principle applies to credit. Early on in the life of a business, creditors may use your personal credit history in determining whether to give credit to your business, and they may require a personal guarantee on financial commitments. This means that you and the business will be liable for the debt. In fact, on most “small business credit cards,” this is always a requirement.

However, other credit products may not require a personal guarantee, therefore giving you access to pure business credit. One factor in getting approved for such products will be the credit history of the business (including the business’own credit score), so it is important to build a good financial and credit history in the business from day one. Note: building a business credit score typically requires an Employer Identification Number (EIN). Having an EIN is not required for all business types, but can be applied for. Therefore, if you have a type of business not required to have an EIN but want to build your business credit, it may make sense to apply for an EIN.

The dangers: The dangers of business credit are not much different than the dangers of personal credit, but the stakes may be higher. If you have access to credit personally and access to credit through your business, that could lead to a substantial total credit limit. If you were to take a significant business risk or manage your credit improperly, there is the potential to face an astronomical level of debt without the income necessary to pay it off. And depending on your business, your credit decisions may not just impact you but could affect your employees too.

Recap

You do not need good credit to start a business. In fact, there is no requirement that a business use credit at all. However, for some business models, credit will be essential. Early on, creditors will use your personal credit history in determining the terms of any credit they offer the business. But over time, you can put separation between your personal credit and your business credit, which has several advantages. At the end of the day, the same general principles of smart credit management in personal finance apply to business finance. Should you need any assistance with your business or personal credit, the NFCC is here to help.

The post Do you need good credit to start a business? appeared first on NFCC.

Read more: nfcc.org

Read more

At What Age Can You Start Building Credit?

December 23, 2019CreditBy toptierfinancial

At What Age Can You Start Building Credit? - Pinterest

There’s never a bad time to start building good credit, but there is definitely a good time to start: as early as possible. The earlier someone starts building credit, the easier it will be to seek credit as an adult. The question is: at what age can you start building credit?

Whether you want to start building your own credit or whether you want to help your child get a head start on preparing for their financial future, this article is for you. We answer the questions of when you can start building your credit, how to build credit for a minor, and how to build your child’s credit.

Why You Should Start Building Credit Young

Obviously, most children and teenagers don’t have access to credit cards or other credit products, for good reason. However, this doesn’t mean that teens cannot or should not build credit. In fact, quite the opposite is true.

Let’s look at an example to understand why it’s important to start building credit even before turning 18. If you’re an adult and you’ve never used credit before, but you now need an auto loan, what do you think is going to happen when you go and apply for a loan?

Since you don’t have a credit history, chances are, you’re probably going to get denied. If you do somehow get approved for an auto loan with no credit, it’s likely going to have a very high interest rate since you will be perceived as a risky borrower.

The moral of the story is that you can’t wait until you need credit to start thinking about building credit. You need to start building up a positive credit history early on so that you can have that good credit to rely on when you eventually end up needing it.

Beyond the issue of having access to credit when you need it, having good credit may also be important when entering the workforce. Many employers conduct background checks and check the credit reports of prospective hires, and having a solid credit history will reflect positively on applicants.

Having already established good credit will also come in handy when shopping for insurance, applying to rent a home, setting up utilities, and maybe even buying a cell phone plan. All of these industries typically conduct credit checks on applicants before getting into business with them.

How Do You Start Building Credit?

To build credit, of course, you need to use credit products. This is why many people wait until they are well into adulthood to try to start building credit, which, as we just learned above, is a mistake because it can hold you back when you actually need to get credit.

However, we all know how difficult it can be to get approved for credit when you don’t have yet have a credit history that shows creditors that you can manage credit responsibly. Lenders don’t want to take on the risk of lending to someone whose future behavior is hard to predict.

Secured credit cards, which require a security deposit as collateral, can be one way to start building credit.

Secured credit cards, which require a security deposit as collateral, can be one way to start building credit.

So how do you start building your credit without a credit history? One option is to apply for a secured credit card, which involves putting down a security deposit as collateral against the credit limit of your card. Lenders can issue these cards to consumers with no credit without taking on as much risk since they can keep the deposit if you default on payments. [Disclosure: This article contains affiliate links.]

Another strategy is to apply for a credit-builder loan, which works in the reverse order of a traditional loan: first, you make all the monthly payments toward the balance of the loan; then, once you have finished making the payments, you receive the loan disbursement.

Since you have already fronted the money, lenders don’t have to face the risk of you not being able to pay back the loan. Because of this, as long as you have enough income to make the monthly payments, your chances of getting approved for a credit-builder loan are very high. 

There’s an easier way to start building credit, though. If you can’t get approved for any primary accounts on your own, or if you want a “shortcut” to building credit without having to wait for your primary accounts to age, you can build credit fast by piggybacking on someone else’s credit.

Piggybacking simply means becoming associated with someone else’s credit account for the purpose of building credit. There are three ways to piggyback, which you can also see in our infographic:

Get a cosigner or guarantor who can be held responsible for the debt if you cannot pay it.
Open a joint account with someone who has good credit and can help you get approved for the joint account.
Become an authorized user on someone else’s seasoned tradeline that is in good standing. 

The first two of these three piggybacking methods involve opening new primary accounts, which means you have to wait a few years for the accounts to gain seasoning before they start to help your credit in a more significant way.

On the other hand, piggybacking as an authorized user means you can be added to an account that already has plenty of age and on-time payment history. That’s why it’s one of the most convenient ways to start building credit fast.

How to Help Your Child Build Credit
Teach your child about credit before they get a credit card so they don't make the mistake of getting deep into debt.

Teach your child about credit before they get a credit card so they don’t make the mistake of getting deep into debt.

Unfortunately, financial literacy is usually not emphasized in schools, so the responsibility of educating children about credit and helping them build credit falls primarily to parents and guardians.

It’s important to not only know how to help build your child’s credit but also to teach them the basics of financial literacy so that they will one day be able to manage their finances and their credit on their own.

Lay a solid foundation by teaching them about budgeting and saving. If your child is old enough to work, that can be a good opportunity to see how they manage their income.

Then you can move on to the world of credit. Your child needs to have an understanding of how credit works before getting a credit card or they could be headed for disaster.

In a survey of college students conducted by U.S. News in August of 2019, about 35% of students surveyed said they were not taught about fundamental financial topics before getting a credit card. A lack of understanding about how credit works and how to use it responsibly can easily lead to getting deep into debt and a lifetime of financial troubles.

In the same survey, 13% of students said they had over $8,000 in credit card debt, and almost 23% said they didn’t even know how much credit card debt they had. No one wants that to happen to their child, so make sure your kid knows how to use credit cards properly before they get one.

But beyond teaching your child the fundamentals of credit, can you build your child’s credit even before they get a credit card or loan of their own?

How to Build Your Child’s Credit Score by Piggybacking Credit

While helping them learn the ins and outs of the credit system, it’s also smart to help them get a head start on actually building credit via credit piggybacking, which means becoming associated with another person’s credit account.

If you have good credit, consider adding your child at an early age as an authorized user to one or more of your credit cards that are in good standing. If they’re not yet ready to use the account responsibly, you don’t necessarily have to give them access to a credit card. Alternatively, if you want to let them use a credit card, some credit card issuers may allow you to set spending limits for authorized users.

Piggybacking credit can help your child build credit early in life.

Piggybacking credit can help your child build credit early in life.

Being an authorized user on the account will still help them even if they don’t have spending privileges on the card. The positive payment history of that account will usually be reported on the authorized user’s credit profile, which can help kick start their credit score.

Unfortunately, according to the U.S. News study, about 75% of the college students that participated in the survey said they did not become an authorized user on someone else’s account before getting their own credit cards. That means they likely missed out on the lower interest rates and other perks that come with having an established positive credit history.

This statistic is not surprising. As we learned in our article, “What Happened to Equal Credit Opportunity for All?” equal credit opportunity is sadly not a reality in our country. Wealth disparities and historical discrimination prevent many Americans from being able to establish good credit and get ahead in life. 

Those with wealth and financial education commonly used the authorized user piggybacking strategy to help their children build credit, while at the same time there are many young people who don’t have parents or loved ones that can help them establish credit. The tradeline industry helps to address this problem by providing access to authorized user tradelines to all consumers.

It’s clear that the authorized user strategy is an ideal way to help your child build credit. But when can you actually start building credit? Is there a minimum age requirement to be an authorized user? Can you start building credit before 18, for example?

At What Age Should You Start Building Credit?

It can be difficult for young adults to get approved for a credit card on their own since credit card issuers are required to check applicants’ income before issuing them credit. However, by using the authorized user credit piggybacking strategy, young people can start building credit earlier than you may think.

Minimum Age for Authorized User on Credit Card
Many credit card issuers have no minimum age requirement for authorized users.

Many credit card issuers have no minimum age requirement for authorized users.

A survey by creditcards.com revealed that half of the major credit card issuers surveyed, including Bank of America, Capital One, and Chase, had no minimum age requirement for authorized users! That means that with many of the most common credit cards, you can add your child as an authorized user at any age.

Credit card companies that do have age requirements, such as American Express, Barclays, Discover, and US Bank, typically impose a minimum age limit that is between 13 to 16 years old.

Check with your credit card issuers to see what the minimum age requirement is for authorized users on your cards.

In addition, check with your credit card issuers to see whether they report authorized user information to the credit bureaus since not all banks do. If you’re purchasing a tradeline, however, you don’t have to worry about that, since all of the banks we work with do report to all three major credit bureaus.

Conclusion

It’s a smart idea to help your child build credit early so they can start their adult life on a financially sound footing. If you have good credit yourself, the easiest and fastest way to build your child’s credit is by adding them as an authorized user to one or more of your credit cards that have a perfect payment history. 

Kids can become authorized users at any age with some credit cards, while there is a minimum age requirement of 13 to 16 years with other cards. Check to see what your bank’s policy is.

Unfortunately, many people do not have access to this credit-building strategy. If you are one of those people, consider purchasing a seasoned tradeline when it comes time for your child to start establishing a credit history.

It’s never too early to start building good credit!

Did your parents teach you about credit at a young age? How do you plan to help your child build credit? Share your thoughts below!

Read more: tradelinesupply.com

Read more

What Are Credit Scores and How Can Tradelines Help?

July 18, 2019CreditBy toptierfinancial

What Are Credit Scores and How Can Tradelines Help? Pinterest graphicWhen it comes to credit scores, there’s a lot of confusion and misinformation out there. Our credit scores impact our lives in more ways than you might think, yet, unfortunately, they are complicated and difficult to understand. In this article, we’ll clear up what credit scores are, why they matter, how to build credit, and how to improve your credit score.

What Is a Credit Score?

A credit score is a 3-digit number that is meant to represent your credit risk, or how likely you are to default on a loan. This credit rating is calculated based on the information in your credit report, which lists your current and recent credit accounts.

To use an analogy, your credit report is like your school transcript: it is a list of your current and recent credit accounts and how well you did in paying them off on time. Your credit score rating is like your overall GPA: it sums up all of that credit history information into a single number.

While there are many different versions of credit scores, most lenders use a FICO credit score. Another credit score, called the VantageScore, was developed by the three major credit bureaus: Equifax, Experian, and TransUnion. The VantageScore is primarily used for educational purposes rather than lending decisions.

Both the VantageScore and the FICO credit scores range from a low of 300 to the highest score of 850. Lower numbers represent a higher likelihood of defaulting on a loan, which is considered bad credit, while higher numbers represent a lower likelihood of defaulting on a loan, which is considered good credit.

Why Is Your Credit Score Important?

If you ever want to buy something using credit instead of cash—a house or a car, for example—you’ll likely want to have a good credit score. Your credit score is what lenders use to decide whether or not they should loan you money and what the terms of that loan should be.

If you have a bad credit score or no credit score at all, you may have a hard time getting credit from lenders.

If you have a bad credit score or no credit score at all, you may have a hard time getting credit from lenders.

If you don’t have a credit score or credit history at all, lenders don’t have a way of judging your creditworthiness. Therefore, they may see you as too much of a risk and decline your request for credit.

If you do have a credit score, lenders will see it as a representation of how risky it is to lend money to you. A great credit score means you are a low-risk borrower, which means lenders can offer you low interest rates and other perks, such as credit card rewards.

On the other hand, a low credit score represents a high risk to lenders, since it shows that you may be more likely to default on a loan. To compensate for the higher risk of default, lenders charge higher interest rates and fees to those with poor credit scores—if they are willing to extend credit at all.

Your credit score doesn’t just affect your access to credit and the costs associated with using credit. Credit scores have increasingly been used for a variety of non-credit applications.

Phone carriers and utility providers may require a security deposit based on the results of your credit check.

Phone carriers and utility providers may require a security deposit based on the results of your credit check.

A significant percentage of employers do credit checks on prospective employees, so a bad credit score could cost you your dream job.
Your credit score may affect what you pay for insurance, so you’ll want to have a good credit score if you want to get the best insurance rates.
Landlords often check credit scores of applicants to see how reliable they are in paying their bills.
Utility providers and even cell phone carriers may check your credit score to determine whether to charge you a security deposit upfront.

As you can see, credit scores affect a lot more than just your ability to get credit, and it is more important than ever to prioritize building your credit score.

What Factors Determine Credit Scores?

Although the specific algorithms behind credit scores are closely-guarded trade secrets, the general categories that affect credit scores are widely known. In general, here’s what makes up a credit score:

Payment history: 35%. This is the most important piece of your credit score, so even one late or missed payment can do a lot of damage.
Utilization (how much you owe): 30%. Your utilization ratio is the ratio of the amount of debt on all your revolving accounts (e.g. credit cards) to your total available revolving credit, expressed as a percentage. Credit scores may account for both your overall utilization ratio and the utilization ratio of each individual tradeline. The lower your utilization, the better for your credit score.
Length of credit history: 15%. This category considers factors like your average age of accounts, the age of the oldest account in your credit file, and the ratio of “seasoned” to non-seasoned tradelines. A seasoned tradeline is defined as one that is at least two years old, at which point it is believed that the account begins to have a more positive impact on your credit score. The more age your accounts have, the more they will help your credit score.
The five factors that affect your credit score by Tradeline Supply Company, LLC

These five main factors affect your credit score.

Credit mix: 10%. Creditors want to see that you can responsibly use different types of credit, so they look for a variety of accounts in your credit report, including both revolving credit accounts and installment loans.
New credit: 10%. This credit score category takes into account any new inquiries and new accounts that you have added in the past 6 to 12 months. Creditors consider seeking new credit a risky behavior, so inquiries can hurt your score. Opening a new account can also have a temporary negative effect on your score since it has no age or payment history.

What Is a Good Credit Score?

Scores between 670 and above are considered good credit scores. Very good credit scores lie between 740 and 799 while excellent credit scores include scores of 800 and above.

Which credit score is the best? Only about 1% of Americans have the coveted 850, a perfect credit score.

Credit scores range between 300 and 850, with 850 being the best credit score possible.

Credit scores range between 300 and 850, with 850 being the best credit score possible.

How to Get a Good Credit Score
The most important factor of a good credit score is a history of on-time payments.

The most important factor of a good credit score is a history of on-time payments.

Here are some things that can help you get a good credit score:

A history of on-time payments
Low utilization ratios
Accounts that are at least 2 years old
A mix of different revolving and installment accounts
Minimal inquiries
Monitoring your credit report for errors

Learn more about how to increase your credit score with do-it-yourself credit repair strategies and our guide to how to get an 850 credit score.

What Is a Bad Credit Score?

According to Investopedia, credit scores of 579 or below are considered bad credit scores, with 61% of borrowers in this credit score range being predicted to become delinquent on future loans.

Credit scores in the range between 580 and 669 are considered fair because only 28% of these borrowers are predicted to become delinquent on future loans. Unfortunately, even those with fair credit scores often have difficulty getting credit and higher interest rates than those with good or excellent credit scores.

Bad credit scores can have serious consequences that reach farther than just your finances. For more on bad credit, its effects, and how to fix it, check out our article on bad credit.

Here are some things that can lead to a bad credit score:

Having too much debt can drag down your credit score.

Having too much debt can bring down your credit score.

Late or missed payments
High credit card balances
Low account age
Not enough accounts
Too many inquiries
Collections
Judgments
Foreclosure
Bankruptcy
Identity theft

How to Build Credit

To build credit, you’ll need to open your own credit accounts and keep them in good standing by always making payments on time. This is the foundation of a good credit score.

Once you build credit by piggybacking, you can open your own accounts to continue building your credit score.

Once you build credit by piggybacking, you can open your own accounts to continue building your credit score.

However, as we mentioned, it can be difficult to start building credit since lenders typically want to see a credit score and credit history before extending credit.

The fastest way to build credit, especially for those who have a limited credit history, is to piggyback on the credit of someone else. Examples of credit piggybacking include getting a cosigner or guarantor in order to qualify for credit, opening a joint account with someone, or being added as an authorized user.

Once you have started to establish a credit history by piggybacking, you can continue to build up your credit by opening up more tradelines. You can also add tradelines to your credit file that already have years of perfect payment history to help balance out the effects of any derogatory accounts.

Remember, tradelines are the foundation of building credit because all credit starts with tradelines.

How to Improve Your Credit Score

If you need to fix your credit score, there are some strategies you can use to repair your credit score yourself, such as disputing errors on your credit report and paying down high credit card balances.

Since payment history makes up the majority of your credit score, the most important thing is to get all of your accounts current and make sure to make all payments on time in the future, and your credit score should gradually recover.

When it comes to boosting your credit score, lasting results will require patience, good financial practices, and knowledge of how the credit system works. Use our free educational resources to learn more about credit scores, building credit, and how tradelines can help add credit history to your credit report.

Ready to buy tradelines? See our updated tradeline list now.

Read more: tradelinesupply.com

Read more

Tradelines: What You Should Know About Building Credit

May 26, 2019CreditBy toptierfinancial

We all know that credit history is important because it’s how lenders, landlords, and sometimes even employers assess our creditworthiness. Anytime you apply for a loan or credit card, the lender will use your credit file to determine whether they think you are eligible for credit and what your interest rate will be.

But did you know that all credit is built from tradelines? Although this fact is not often discussed, it’s just as important to understand when it comes to building credit. Keep reading to find out why all credit begins with tradelines.

Building good credit may seem complicated, but it all boils down to properly managing your tradelines.

Although building good credit may seem complicated, it all boils down to properly managing your tradelines.

What Is a Tradeline?

A tradeline is any account that appears on your credit report. This includes both revolving accounts and installment loans.

Revolving accounts are accounts that can be used repeatedly without paying them off in full every month, so they may fluctuate in balance and minimum payment. Examples of revolving accounts include credit cards and home equity lines of credit. An installment loan is a loan that is repaid over time with a set number of scheduled payments, e.g. a mortgage, auto loan, or student loan.

All of these different types of accounts are tradelines. Essentially, whether you have good or bad credit depends entirely on how you manage your tradelines.

Check out “What Is a Tradeline?” and our Tradelines 101 infographic for more tradeline basics.

What Goes Into Your Credit Report?

Although each credit reporting bureau keeps the specifics of their credit scoring models a closely guarded secret, the general categories that factor into credit scores are widely known. In general, here’s what goes into a credit report, which is then used to calculate your credit score:

Credit scores are comprised of five main factors.

Credit scores are comprised of five main factors. (Click this image to pin to your Pinterest board!)

Payment history, approximately 35%: Paying the amount due on your tradelines on time every month is extremely important. Late or missed payments could result in derogatory marks that bring down your score. It’s a good idea to have several different tradelines that are in good standing since this category is weighted so heavily. If you do have a derogatory tradeline, it is important to maintain a perfect payment history on the rest of your tradelines to balance out the negative mark on your report. You always want your good history to outweigh the bad.
Utilization, or how much you owe, approximately 30%: Your utilization ratio is the ratio of how much you owe on all your revolving accounts (e.g. credit cards) to your total available credit, expressed as a percentage. Credit bureaus may consider both your overall utilization ratio and the utilization ratio of each individual tradeline. The lower your utilization, the better—it is generally recommended to keep your utilization below 30% but having it lower than this is even better. Therefore, tradelines with high utilization can hurt your score, while tradelines with low utilization can help your score.
Length of credit history, approximately 15%: This category considers factors like the average age of your tradelines, the oldest tradeline in your credit file, and the ratio of “seasoned” to non-seasoned tradelines. A seasoned tradeline is generally considered to be one that is at least two years old, at which point it is believed that the tradeline begins to have a more positive impact on your credit file. The older your tradelines are, the better impact they will have on your credit report. Since length of credit history goes hand-in-hand with payment history, together making up 50% of your credit score, generally, age is the most powerful factor of a tradeline.
Credit mix, approximately 10%: Creditors want to make sure that you can manage different types of credit, so they look for a balanced mix of different tradelines in your report. The most important thing is to have tradelines in both of the two major categories: revolving credit and installment loans.
New credit, approximately 10%: Credit scoring models take into account any new inquiries and new tradelines that you have added in the past 6 to 12 months. Generally, opening a new primary tradeline can have a temporary negative effect on your score, since it has no age and the person has not demonstrated their payment behavior on that account for very long.

Every major factor that goes into your credit file directly depends on your tradelines. Therefore, by adding authorized user tradelines, you can potentially affect each of these five factors.

Mismanaging your tradelines can lead to bad credit. Photo via CafeCredit.com.

Mismanaging your tradelines can lead to bad credit. Photo via CafeCredit.com.

There are a few things that could show up in your credit file that are not technically tradelines, such as collections, judgments, bankruptcies, and foreclosures. However, these bad credit items can all be thought of as the result of not properly managing your tradelines. Let’s examine each example.

A collection occurs when you have not been making payments on a tradeline and the creditor sells your debt to a collection agency.
A judgment against you happens when you default on a tradeline and a judge orders you to pay back the debt.
You might declare bankruptcy if you cannot pay off your tradelines and need to be released from the legal requirement to pay them.
Foreclosure is when a mortgage lender takes possession of the mortgaged property when the borrower fails to make payments on the mortgage tradeline.

How to Build Credit

The best way to build a good credit record is to open a variety of tradelines and keep them in good standing by making payments on time and keeping the utilization low. The fact is that you simply cannot build credit without tradelines.

Opening a credit card is a common way to establish a credit file and start building credit, but it is not the only option. Other paths to building credit include taking out student loans, auto loans, or secured loans. Unfortunately, building credit is often considered as a catch-22 because lenders are hesitant to provide credit to those with no credit history, so it can seem like it takes credit to get credit.

To overcome this obstacle, many people rely on the positive credit history of others to establish their own credit file.

Parents sometimes add their children as authorized users to their tradelines to help them build credit early.

Parents sometimes add their children as authorized users to their credit cards to help them establish credit early.

The Consumer Financial Protection Bureau estimates that about 25% of consumers first acquire credit history via an account on which someone else was also responsible. Some of these consumers open a joint account with a co-borrower, while others become authorized users on someone else’s primary tradeline.

As an example of this, parents are commonly advised to add their children as authorized users to their credit cards in order to help them establish a positive credit history early in life. In fact, it is estimated that about 20-30% of Americans have at least one authorized user tradeline in their credit file.

Unfortunately, many people do not have the same opportunity to benefit from a family member’s authorized user tradelines. Studies have shown that minorities and lower-income demographics are less likely to have authorized user tradelines, which means they are likely to face difficulty in establishing a credit history.

We are proud to help reduce financial inequality by providing equal opportunities to those who may not have a friend or family member who can provide the benefits of an authorized user tradeline.

Tradelines and Your Credit

It is crucial to be knowledgeable about credit since credit is such an integral part of your financial well-being. Since all credit is essentially built on tradelines, it is equally important to understand the way tradelines may affect your credit.

Sometimes gaining access to tradelines can be a challenge for people who are either new to credit or who have had problems in the past and are trying to re-establish their credit. Traditionally, some people have had the privilege of relying on family and friends to help share credit, but new innovations have created equal opportunities for those who may not have the same opportunity. We are proud to provide quality tradelines for sale at affordable prices at TradelineSupply.com.

Were you surprised to learn that all credit is built from tradelines? Let us know by leaving a comment!

Read more: tradelinesupply.com

Read more