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Want To Boost Your Credit Score?
Most young people have no idea what a credit score is or how it works and often ruin their credit before they have even established credit. Many have no idea that applying for student loans and being required to have a co-signer is because of their credit history. There are people who think that credit cards are free money and if they do not pay it back, there are no consequences and nothing will happen to them. Don’t have the rent? Oh well. Can’t afford the doctor bill? Might as well ignore it.
Unfortunately, real life does not work this way. If you open up a line of credit via a credit card and use the $500 limit to the max, you are expected to pay the company that lent you the money back. A credit card is real money that you are borrowing temporarily until you get your bill at the end of the month. If you do not pay it back, the credit card company will not only do all they can to make you pay the money back, but they will charge you interest and mark it on your credit report that you are delinquent.
What is a Credit Report and Why is it Important?
Throughout school, you are given a report card with marks of your grades, which follow you throughout your young childhood school career. These marks allow eventually allow colleges to know exactly the type of student you are. Maybe you were lazy, but you are actually really smart. Well, a college has no idea who you are, so they base their decisions of acceptance on your grades. A student loan corporation might do the same, basing your grades on the type of person you actually are. A credit report works the same way.
The whole idea: Are you a financially responsible individual that can be trusted to pay money back if you are lent money? You receive a Credit Score on a public Credit Report that all companies can look at by request to determine the type of person you are when it comes to being financially responsible. The more financially responsible you are, the more likely companies are to lend you money entrusting you to eventually pay them back.
A Credit Score ranges from Poor to Excellent, but is determined by numbers.
- Excellent Credit: 781 – 850
- Good Credit: 661-780
- Fair Credit: 601-660
- Poor Credit: 501-600
- Bad Credit: below 500
There are also various scoring models or algorithms that companies have created. These models are:
- FICO Score range: 300-850
- VantageScore 3.0 range: 300–850
- VantageScore scale (versions 1.0 and 2.0): 501–990
- PLUS Score: 330-830
- TransRisk Score: 100-900
- Equifax Credit Score: 280–850
The higher the score, the better off you are when it comes to applying, receiving, building, and using credit.
The hardest part about getting credit is obtaining it if you do not already have it. I remember applying for at least five credit cards over the course of at least 2 years before a company finally approved me. Once you obtain credit, you should use it and be responsible with it. Your credit report and credit score could mean the world if you use it correctly. For example, you might go to buy a car, but it costs more than you actually have in your bank account. It is your dream car and you really want it. You apply for a line of credit with a company and are approved meaning that this company will lend you money to buy the car you want, and you will pay them back a monthly fee with some interest in order to buy the car. If, however, you miss more than one payment, the credit card company becomes suspicious and will begin to mark on your credit report that you have missed several payments.
The next time you go and apply for something else, other companies will look at your credit report, see that you missed payments, and weigh this against their decision to give you credit. If you have never missed a payment, you have given the credit company no reason to suspect you are irresponsible and they will be more than likely to lend you money.
That is the basics of credit reports, credit history, and credit scores. Be responsible. No money is free money in this world. If you borrow it, you owe it, and you must pay it back as soon as possible. If you cannot pay it, you are, unfortunately, not deemed responsible enough to borrow money. This borrowing stems across all areas including merchandise, automobiles, vacations, and houses.
No matter how much you borrow or how long it takes you to pay something back, no matter low your credit score is, pay something back to show you are responsible. The moment you begin to start paying back all the money you owe to whatever company you owe it to, the sooner your credit score will go up and the sooner you can begin to be seen as responsible.
Most credit lending companies are willing to forgive past mistakes, so long as they see you make the effort. There have been people who have gone bankrupt and were able to rebuild their credit score right back to the highest mark as of now, which is an 850.
No matter how great your situation is, something dire could happen, and your credit score could be affected, especially if your identity somehow gets stolen and someone goes on a rampage using your name and social security number. Every 6 months to a year, check up on your credit history, credit report, and credit score to ensure that you are the only one who is using it.
No matter how bad your situation is, something great could happen, and your credit score could be affected, especially if you begin to pay all of your bills on time, open up a few lines of credit, and pay them on time, and begin to show the world and all the companies within it that you are a responsible person who understands how credit works.
This infographic highlights other ways to increase your credit score and build a great credit history.
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How To Boost Your Credit Score
Here are a few credit-related habits to help you improve your credit score:
- Do: Keep your balances manageable and under your credit limit.
- Do: Pay all your bills on time every month, including loans, utilities, and mortgage payments.
- Do: Keep credit accounts that you’ve historically paid on time.
- Do: Check your credit report once a year for accuracy.
- Don’t: Exceed the limits on your credit card accounts.
- Don’t: Miss a payment or fail to pay at least the minimum amount due.
- Don’t: Apply for a lot of credit accounts in a short period time.
- Don’t: File for bankruptcy or get your account turned over to a collection agency.
Avoiding late payments
Set up payment reminders with your accounts so you never accidentally miss a due date.
What does your credit score say to lenders? *
Anything above 700 is more attractive to lenders
Anything under 620 could make it harder to get a mortgage
- Excellent (800-850)
- Great (730-799)
- Good (680-729)
- Fair (580-679)
- Poor (500-579)
- Very Poor (300-499)
*These are general estimates of categories. Different lenders may have different standards for categories.
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