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.

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FICO 10 and FICO 10T Explained by a Credit Expert

January 5, 2022CreditBy toptierfinancial

FICO 10 and FICO 10 T are new credit scoring models developed by FICO that have the potential to change the credit industry in a major way.

Credit expert John Ulzheimer, who worked for FICO for seven years and has almost 30 total years of experience in the industry, explained what FICO 10 and FICO 10 T are and what they mean for you as a consumer in an episode of Credit Countdown.

Disclaimer: The views and opinions expressed in this article are strictly those of John Ulzheimer and do not necessarily reflect the official stance or position of Tradeline Supply Company, LLC. Tradeline Supply Company, LLC does not sell tradelines to increase credit scores and does not guarantee any score improvements. Tradelines can in some cases cause credit scores to go down.

What Are FICO 10 and FICO 10 T?

The FICO 10 and FICO 10 T credit scoring models are part of the latest generation of credit scores in FICO’s lineup, which also includes FICO score generations 2, 3, 4, 5, 8, and 9. Currently, the most widely used base model is FICO 8. With every new FICO score, FICO tries to improve upon the power of their scores to predict consumer defaults, which is the overarching goal of credit scores generally.

The tenth generation of FICO credit scores is technically called the FICO 10 Suite, as it contains multiple different versions of FICO 10, although in common language this entire group is often simplified as just “FICO 10.”

FICO 10 was announced in early 2020, and it has received much media attention due to the changes that distinguish it from its earlier counterparts.

Why Are Consumers Worried About FICO 10?

Media coverage of the new suite of credit scores tends to focus on the claim that some consumers may see their credit scores go down with FICO 10.

However, John Ulzheimer says that this creates “controversy where controversy doesn’t exist.”

Why? Here are two reasons.

1. The FICO 10 Suite is a normal redevelopment of the FICO credit scoring system.

As we discussed above, FICO regularly redevelops their credit scoring models in order to make them more and more predictive of credit risk.

This is just like what other companies do with their products. Think of Apple and the iPhone: there isn’t just one iPhone anymore. They introduce newer generations of the iPhone, and people want to upgrade to the new and improved models that work better.

This does not mean that the previous versions were “bad,” just that there is a new version that may be better.

2. Your credit scores will be different every time FICO redevelops its credit scoring system.

With every change that is made to the credit scoring system, as an inevitable consequence, your credit score will change. That’s not necessarily a bad thing. Your credit score could go up, or it could go down, or it could remain similar to where it was.

Regardless of any changes made, the fact is that if you have a good credit score with one scoring model, you will likely still have a good credit score with a different model. The same goes for bad credit scores. Although different credit score versions have different ways of going about it, they all share the ultimate goal of predicting a consumer’s credit risk, and this will be reflected in your scores regardless of which particular credit scoring model is used.

Many credit scores

There are dozens of different credit scoring models, and your credit score is going to be different with each model.

How Will FICO 10 Affect Your Credit Score?

In terms of how FICO 10 could affect your score, John says that newer credit scoring models such as FICO 10 do a better job of separating high-risk and low-risk consumers than older models. In other words, if you have good credit, your score is likely going to be higher with FICO 10. If you have bad credit, your credit score is likely going to be lower with FICO 10.

According to John, this is normal and it is what you would expect to see with any new credit scoring system.

What About FICO 10 T (FICO 10 Trended)?

The “T” in FICO 10 T stands for trended data. 

FICO 10 T is unique among FICO’s roster of credit scores because it is the only tri-bureau FICO score on the market with trended data. (FICO competitor VantageScore also has a credit score that uses trended data, VantageScore 4.0.)

What Is Trended Data and Why Is It Unique?

When you check your credit report, you may see that some of your accounts show a history of your balances, your payments due, and how much your payments actually were each month for the past 24 months.

Being able to see this information over time makes it easy to understand the trends in your usage of the account.

Here are some examples of the types of insights trended data can provide:

If you are running up large balances over time.
If you are keeping your balances relatively low over time.
If you have been making your minimum payments over time.
If you have been paying in full over time.
What percentage of your balance you have been paying over time.

Trended data graph increasing

Trended data allows credit scores to consider trends in how you have managed your accounts over the past 24 months.

FICO 10 T can now consider this data as part of calculating your credit score.

The information trended data provides is very valuable because it adds another level of data that helps to predict the likelihood that a consumer will default. 

For example, a consumer who has a perfect payment history and pays in full every month or keeps a relatively low balance is probably going to score better with FICO 10 than a consumer who maxes out their credit cards or keeps a relatively high balance over time, even if they pay off their credit cards every month.

The research done on trended data demonstrates that transactors, those who charge balances and then pay in full, carry less risk than revolvers, who roll over a portion of the balance from month to month rather than paying it off in full each month.

Shopping cart revolving balance credit card

Consumers who carry a balance over time instead of paying their balances off in full every month will be penalized by FICO 10 T.

To summarize, trended data is what makes FICO 10 T different from the base version of FICO 10. FICO 10 still works like other traditional credit scoring models in that it only looks at a “snapshot” of your credit report at a given time.

Should You Be Worried About the FICO 10 Suite of Credit Scores?

You don’t need to stress out about FICO 10, especially if you have good credit, as you will still have a good credit score under FICO 10.

The same practices that are important in other credit scoring systems still apply to FICO 10 and will still reward you with a good score:

Always make your payments on time.
Pay off your credit cards in full every month.
Keep your balances low relative to your credit limits (maintain a low revolving utilization ratio).
Limit the number of hard inquiries that hit your credit report by only applying for credit when you actually need it.

 

We hope this article helped you understand the new FICO 10 and FICO 10 T credit scores. Check out the video below, and browse our Knowledge Center and subscribe to our YouTube channel for more content like this!

 

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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.

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Reasons Why You May Not Have a Credit Score – Credit Countdown

September 25, 2021CreditBy toptierfinancial

Reasons Why You May Not Have a Credit Score - PinterestWe’ve written before about the problem of credit invisibility, which is when a consumer does not have a credit score. Millions of consumers are credit invisible in the United States, which represents a serious obstacle in the path to financial success in a society where credit is interwoven with so many aspects of our lives. You yourself may even be credit invisible and looking for a way to become credit visible by gaining credit history.

If you do not have a credit score, credit expert John Ulzheimer explained why this may be the case in a recent Credit Countdown video on the TradelineSupply Company, LLC YouTube channel. Keep reading for the text version or scroll to the bottom of this article to see the video.

What Are the Minimum Credit Scoring Criteria?

In order to be able to generate a credit score, your credit report has to meet certain requirements. These requirements are slightly different depending on whether the credit scoring model being used is a FICO score or a VantageScore.

FICO Score Minimum Credit Scoring Criteria

You must have at least one undisputed tradeline.

A tradeline is an account on your credit report. This may include credit cards, lines of credit, installment loans, etc. (Other items on your credit report that are not accounts and therefore are not considered tradelines include collections, judgments, tax liens, bankruptcies, and inquiries.)

In order to be included by credit scoring models, the tradeline cannot be disputed.

The undisputed tradeline must be at least six months old.

At least six months of credit history are needed in order to accurately predict your likelihood of defaulting in the future, which is what credit scores are designed to do. Trying to come up with a credit score using fewer data points might cause the score to be less predictive of your actual credit risk, which could create problems for lenders.

You must have recent activity on your credit report (within the past six months).

To meet this requirement, you must have at least one undisputed tradeline that has been updated within the past six months. Don’t worry, this can be the same tradeline that qualifies you for the prior two criteria as long as it has reported activity within the past six months, or it can be a different account.

You cannot be listed as “deceased” on your credit report.

Credit scores cannot be created for individuals who are deceased (or appear to be deceased due to an error).

If your credit profile satisfies these criteria, then you will be able to qualify for any FICO score regardless of which generation it may be.

VantageScore Minimum Credit Scoring Criteria

Compared to FICO scores, the VantageScore credit scoring models have less stringent requirements on who can qualify for a credit score.

You cannot be listed as “deceased” on your credit report.

Like FICO scores, VantageScores also do not calculate credit scores for deceased consumers.

You should have at least one or two months of credit history with any credit bureau.

According to MoneyCrashers.com, “the VantageScore model typically produces scores for consumers with one to two months of credit history, regardless of which bureau reports that activity.” The account or accounts do not need to have six months of age in order to be scored.

The company claims that the VantageScore 4.0 and 3.0 models can provide credit scores to 40 million consumers who cannot be scored using other types of credit scoring models since it is easier for consumers with limited information in their credit files to meet the minimum scoring criteria.

What the Lender Sees When You Do Not Have a Credit Score

If a lender tries to pull your credit score and you do not have one for any of the above reasons, they will instead receive what is known as a “reject code” or a “failure code.” 

This reject code indicates to the lender that you have failed to meet the minimum credit scoring criteria and which criteria you did not satisfy.

Watch the video on this topic featuring seasoned credit professional John Ulzheimer below, or go to our YouTube channel to subscribe and see more credit-related videos!

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Credit Myth Busting: The Opt Out Myth – Credit Countdown With Consumer Credit Expert John Ulzheimer

August 20, 2021CreditBy toptierfinancial

Credit Myth Busting: The Opt Out Myth - Credit Countdown With Consumer Credit Expert John Ulzheimer - PinterestThe “opt-out” myth is one of many myths that lead consumers astray when it comes to credit. What is the opt-out myth and why does it not work?

What Are Pre-Screened Credit Offers?

Pre-screened credit card offers are preliminary offers of credit that credit card companies send to consumers who have a credit profile that matches with that of the company’s desired customer base. The way that the banks determine this is they purchase pre-screened lists of consumers from the credit reporting agencies.

For example, a credit card issuer could request a list of a million consumers who have a credit score between 650 and 725, do not have any bankruptcies on their records, and have not opened a new credit card in the past six months. The credit bureaus would then compile a list of consumers who fit that set of criteria and sell this list to the lender so that the lender can offer credit cards to these consumers.

Is It Legal for the Credit Bureaus to Sell Your Information on Pre-Screened Lists?

Yes, it is completely legal for the credit reporting agencies to include your information on pre-screened lists of consumers for lenders to purchase. It is not a controversial practice.

In fact, credit card issuers very commonly use these pre-screened lists as a way to acquire new consumers, as you may already know if you regularly receive such offers in the mail yourself.

Do You Get Inquiries on Your Credit Reports From Pre-Screened Credit Offers?

Because your credit report is generated and accessed by a business during the pre-screening process, this results in you getting a soft inquiry on your credit report.

For this reason, you may see soft inquiries on your credit report from companies you do not recognize who may have extended a pre-screened offer to you.

Can You Get Your Name Taken Off These Pre-Screened Lists?

You have the right to order the credit reporting agencies to not include your name on the pre-screened lists that they sell to banks. In other words, you are allowed to “opt out” of the pre-screening process.

Opting out is free and easy to do. All you have to do is go to www.optoutprescreen.com, which is a website that is operated by the credit bureaus because they are obligated under the Fair Credit Reporting Act to allow consumers the ability to opt out of having their names on these pre-screened lists.

At this website, you can opt out permanently, or, alternatively, you can choose to opt out for just five years.

If you want your mailbox to stop filling up with pre-screened credit card offers, then opting out via this website is the way to do it.

What Is the Opt-Out Myth?

The myth regarding opting out is the belief that if you opt out of receiving pre-screened credit offers, your credit score will go up.

The reasoning behind this myth comes from the misconception that soft inquiries on your credit report will hurt your credit score.

Soft Inquiries vs. Hard Inquiries

There are two types of credit inquiries: hard inquiries and soft inquiries.

Hard inquiries on your credit report are the result of you applying to obtain credit from a lender. When you do this, the lender pulls your credit report to see if you are creditworthy by their standards.

Because your credit report has been accessed by a lender for the purpose of approving or denying your application, a hard inquiry goes onto your credit report, indicating that you are actively looking to borrow. This implies that you are now a higher credit risk, so your credit score may go down a few points as a result of a hard inquiry.

Soft inquiries, on the other hand, may show up on your credit report when businesses check your credit for other reasons, such as a landlord pulling your credit before approving you for a rental or a prospective employer looking at your credit report as part of the job application process. This also applies to credit card issuers including you in groups of pre-screened consumers in order to solicit your business.

That means you can be confident that being pre-screened for credit offers only results in soft inquiries being added to your credit report.

Soft inquiries do not represent applications for credit on your part, which means they do not reflect your risk level as a borrower. For this reason, they do not impact your credit score at all. They just serve as a record of who has accessed your report.

Why the Opt-Out Myth Is Wrong

The myth that opting out helps your credit score would make sense if we were dealing with hard inquiries on your credit report because hard inquiries can hurt your score.

However, as we pointed out, the only inquiries you get from the pre-screening process are soft inquiries, and while soft inquiries do appear on your credit report, credit scores do not consider them as a scoring factor. Credit scoring systems don’t even know whether you are opted in or opted out of pre-screened offers.

Therefore, pre-screened credit card offers do not affect your credit score at all, so opting out of receiving them will not make a difference to your score either.

Avoid Opt-Out Scams

If you try searching for information about the opt-out myth, you might come across some offers to “help” you opt out and increase your credit score—for a fee. Avoid scam artists who try to sell you products and services to accomplish something that:

Will not actually improve your credit score,
You can do yourself,
Is free to do, and
Takes just about a minute.

Conclusions on the Opt-Out Myth

Despite the fact that misinformation about this topic is commonplace, we can safely say that opting out of pre-screened credit card offers will not help your credit score because being pre-screened does not affect your score in the first place.

However, if you do not want to be included on lists of pre-screened consumers for other reasons, you can quickly and easily opt out on www.optoutprescreen.com for free.

View the Credit Countdown video on this topic below and then check out our YouTube channel for more informative videos!

 

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Reasons Why You May Not Have a Credit Score

July 12, 2021CreditBy toptierfinancial

Reasons Why You May Not Have a Credit Score - PinterestWe’ve written before about the problem of credit invisibility, which is when a consumer does not have a credit score. Millions of consumers are credit invisible in the United States, which represents a serious obstacle in the path to financial success in a society where credit is interwoven with so many aspects of our lives. You yourself may even be credit invisible and looking for a way to become credit visible by gaining credit history.

If you do not have a credit score, credit expert John Ulzheimer explained why this may be the case in a recent Credit Countdown video on the TradelineSupply Company, LLC YouTube channel. Keep reading for the text version or scroll to the bottom of this article to see the video.

What Are the Minimum Credit Scoring Criteria?

In order to be able to generate a credit score, your credit report has to meet certain requirements. These requirements are slightly different depending on whether the credit scoring model being used is a FICO score or a VantageScore.

FICO Score Minimum Credit Scoring Criteria

You must have at least one undisputed tradeline.

A tradeline is an account on your credit report. This may include credit cards, lines of credit, installment loans, etc. (Other items on your credit report that are not accounts and therefore are not considered tradelines include collections, judgments, tax liens, bankruptcies, and inquiries.)

In order to be included by credit scoring models, the tradeline cannot be disputed.

The undisputed tradeline must be at least six months old.

At least six months of credit history are needed in order to accurately predict your likelihood of defaulting in the future, which is what credit scores are designed to do. Trying to come up with a credit score using fewer data points might cause the score to be less predictive of your actual credit risk, which could create problems for lenders.

You must have recent activity on your credit report (within the past six months).

To meet this requirement, you must have at least one undisputed tradeline that has been updated within the past six months. Don’t worry, this can be the same tradeline that qualifies you for the prior two criteria as long as it has reported activity within the past six months, or it can be a different account.

You cannot be listed as “deceased” on your credit report.

Credit scores cannot be created for individuals who are deceased (or appear to be deceased due to an error).

If your credit profile satisfies these criteria, then you will be able to qualify for any FICO score regardless of which generation it may be.

VantageScore Minimum Credit Scoring Criteria

Compared to FICO scores, the VantageScore credit scoring models have less stringent requirements on who can qualify for a credit score.

You cannot be listed as “deceased” on your credit report.

Like FICO scores, VantageScores also do not calculate credit scores for deceased consumers.

You should have at least one or two months of credit history with any credit bureau.

According to MoneyCrashers.com, “the VantageScore model typically produces scores for consumers with one to two months of credit history, regardless of which bureau reports that activity.” The account or accounts do not need to have six months of age in order to be scored.

The company claims that the VantageScore 4.0 and 3.0 models can provide credit scores to 40 million consumers who cannot be scored using other types of credit scoring models since it is easier for consumers with limited information in their credit files to meet the minimum scoring criteria.

What the Lender Sees When You Do Not Have a Credit Score

If a lender tries to pull your credit score and you do not have one for any of the above reasons, they will instead receive what is known as a “reject code” or a “failure code.” 

This reject code indicates to the lender that you have failed to meet the minimum credit scoring criteria and which criteria you did not satisfy.

Watch the video on this topic featuring seasoned credit professional John Ulzheimer below, or go to our YouTube channel to subscribe and see more credit-related videos!

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The Top 3 Credit Myths That Won’t Go Away – Credit Countdown With Credit Expert John Ulzheimer

May 6, 2021CreditBy toptierfinancial

Top 3 Credit Myths - PinterestMyths about credit, unfortunately, are extremely common, even among people who purport to repair credit. We’ve previously compiled a list of common credit myths, which you can find in our Knowledge Center.

In this post, we’re going to focus on the top three credit myths that just won’t seem to go away, according to credit expert John Ulzheimer in a Credit Countdown video on the topic. Check out the video version at the end of this post.

Myth 1: Your revolving utilization ratio is worth 30% of your credit score.

While the general category of how much debt you owe does contribute 30% of your FICO score, the specific metrics regarding revolving utilization are just part of that category, not the whole thing. There are several other metrics included in this category, which FICO lists on their website. These include:

The total amount you owe on all of your credit accounts.
The amounts you owe on different types of accounts, such as installment loans and credit cards.
The number of your accounts that have balances on them.
The ratio of how much you still owe on your installment accounts, such as auto loans and student loans.

Therefore, your revolving utilization must necessarily be worth less than 30% of your credit score, although it is true that it is a highly valuable metric.

Myth 2: Closing an old credit card means the age of the card no longer counts toward your credit score.

Prominent sources in the credit arena often advise consumers not to close their oldest credit cards, claiming that this will cause consumers to lose the benefit of the card’s age. In theory, this idea makes sense because your credit age is worth 15% of your credit score and it is directly connected to your payment history, which is worth an additional 35% of your score.

However, the problem with this advice is that you actually do not lose the age of a credit card once you close the account. In fact, according to John, credit cards continue to increase in age and contribute to your average age of accounts even after they have been closed.

Still, it is important to remember that closing a credit card is not completely free of consequence. When you close a credit card account, you no longer get the benefit of the unused credit limit that was associated with the account, which was likely helping your credit score.

Myth 3: Employers can check your credit scores.

In truth, this myth likely exists because employers can check your credit reports, but credit reports and credit scores are not the same thing. Your credit report contains information about your credit accounts, while your credit score is a three-digit number that represents how creditworthy you are deemed to be by the credit scoring model.

Furthermore, the credit reports that employers receive are different from the versions that are provided to lenders, and these credit reports do not come with credit scores.

 

If there are other credit myths you think we should cover, leave a comment on this article or the accompanying video on our YouTube channel!

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Can Inquiry “Bumpage” and “Choppage” Help Your Credit?

April 28, 2021CreditBy toptierfinancial

Can Inquiry "Bumpage" and "Choppage" Really Help Your Credit? - Credit Countdown With Expert John Ulzheimer - PinterestSome folks in the field of credit repair claim that hard inquiries can be “bumped” or “chopped” off of your credit report through the processes of inquiry “bumpage” and “choppage.”

What do these terms mean, and do they actually work?

Credit expert John Ulzheimer, who has worked in the credit industry for 30 years, gave us his take on this trend in a Credit Countdown video on our YouTube Channel. We’ve outlined the main points of the video for you in the article below.

How Much Do Inquiries Impact Your Credit Score in the First Place?

Credit scores factor in five categories of information when calculating your score, and they are not all given equal weight.

The most important piece of the credit score pie chart is your payment history, or in other words, your track record of making your payments on time. This factor accounts for 35% of your FICO credit score.

The next largest piece is how much debt you owe, which relies heavily on your revolving utilization metrics, among other factors. Your debt comprises 30% of your credit score.

Your length of credit history, AKA your credit age, represents 15% of your score, while credit mix, or your diversity of types of credit accounts, makes up 10%.

Finally, the last 10% of your credit score comes down to the new credit category, which includes hard inquiries.

For this reason, focusing on trying to remove inquiries from your credit report usually does not make sense as a credit improvement strategy. Even if you are 100% successful in removing all of the hard inquiries that may be bringing down your credit score, you will only move the needle a small amount relative to what you could accomplish by focusing on the more important credit score factors.

What Is Inquiry Bumpage?

The concept behind credit inquiry “bumpage” is the idea that the credit bureaus only have a certain amount of space allocated for each consumer’s credit report. Therefore, the theory goes, if you can fill that limited amount of space with new information, you can “bump” the oldest inquiries off of your credit report.

What Is Inquiry Choppage?

Inquiry “choppage” is theoretically what happens when the soft inquiries get “chopped” or removed from your credit report before the hard inquiries can be “bumped” off.

Do Inquiry Bumpage and Choppage Really Work?

According to John Ulzheimer, aside from the speculation and marketing tactics you may see in credit repair space online, there is no reason to believe that bumpage and choppage even happen in the first place, let alone that they are effective strategies to help get hard inquiries removed from your credit report.

Better Ways to Increase Your Credit Score

While the methods of bumpage and choppage are not recommended when trying to improve your credit, fortunately, there are more legitimate and effective things you can try.

Remove inaccurate derogatory information. If there is damaging information on your credit report that is not supposed to be there, filing a dispute to get it removed or corrected should be your top priority.
Pay your bills on time. Since your payment history has the greatest amount of influence on your credit score, getting more on-time payments onto your credit report will go a long way toward attaining a higher credit score.
Maintain low balances on your credit cards. Factors having to do with the amount of debt you owe also play a sizeable role in determining your credit score, and your credit card utilization ratios are the key metrics in this category. The lower your credit card balances are, the higher your credit score can climb.
Limit the number of accounts that have balances on your credit report. In addition to utilization ratios, credit scoring models also consider how many of your accounts have balances on them. Even if the balances are small, if you have too many accounts with balances, this can bring down your credit score.
Increase your credit age. All you have to do to increase your credit age is wait patiently for your accounts to get older!
Plus, try some of the other credit tips we’ve published in our Knowledge Center, such as our list of easy credit hacks that will actually get you results.

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