What Really Matters to Your Credit Score

June 15, 2016

Do you know what elements make up your credit score? First, it’s important to know the difference between your credit score and your credit report, which are often confused. Your credit score is based on the items found on your credit report, kind of like how your grades are based on how you did on your homework and class assignments.

In order to get a better grade, you need to improve your homework and assignments. So before you freak out because your score is lower than you think it should be, you need to know how it’s calculated. Here are five things that you might think matter – but don’t – and five that really do.

What Doesn’t Matter

  • Employment history. Even though the amount of credit card offers I receive skyrocketed when I re-entered the workforce after being self-employed back in the day, credit agencies do not track your employment, nor does it affect your credit score. Whether or not you have a job may affect your ability to obtain credit (such as a loan or credit card), but that information does not go into your credit history.
  • Interest rates on debt. The lower your rates, the quicker you’ll pay off debt, which matters. But having higher rates does not affect your score.
  • Savings account balance. Your credit score is based solely on your credit history. Your bank account balance is not a part of your credit history. Rich people can have bad credit too.
  • Your age. Your date of birth might be on your credit report, but it does not play into the calculation of your credit score.
  • Where you live. Sorry, but that swank ZIP code won’t do diddley for your credit score if you’re not paying your bills on time!

What Does Matter

  • Paying on time. Whenever anyone asks me how to increase their credit score, my automatic response is, “Pay all your bills on time. Every time.” One late payment can wreak havoc on your score. You’d be surprised how many wealthy people struggle with this one!
  • Your credit utilization. The balance of your accounts relative to your credit limits definitely makes a difference on your credit report. The closer you are to maxing out, the worse the effect.
  • How long you’ve had credit. It’s called a credit history for a reason. The whole purpose is to help a creditor decide if they should lend you money. The further back you can demonstrate that you regularly pay your debts back, the better your score will be. This is where the advice about keeping a zero balance card open comes into play – just to show how long you’ve had it.
  • New accounts and credit checks. Opening a slew of new accounts (or attempting to) in a short period of time is a red flag to a lender. It can indicate that you’re planning a spending spree or that you are expecting to lose your job. If you’re planning to apply for a mortgage or other loan where your interest rate is determined by your credit score, try to avoid applying for any new credit cards at the same time.
  • The number and type of accounts. There are such things as “good debts” and “bad debts.” Having a mortgage, student loan or car loan looks better (as long as you don’t have late payments on your record), because it implies that you’re responsible enough to maintain a home, go to school and take care of a car. Plus the things that credit bought tend to last longer than the loan, making it good debt. Credit card debt isn’t as flattering – especially a bunch of store cards that are maxed out. Hello, shopaholic!

Finally, make sure you’re checking your credit report annually and cleaning up any errors. (The ONLY official place to get your federally mandated free reports is at www.annualcreditreport.com.) After all, one more thing that can matter to your credit but shouldn’t is someone else’s mistakes.

 

Why Everyone Needs to Check Their Credit Report

April 05, 2016

I try to practice what I preach but I do not always succeed. I was recently talking to a group of people about the importance of checking their credit reports at least once a year to make sure that it is accurate.  After I was done talking to them, I started thinking about the last time I reviewed my credit report.

When I could not come up with a date, I realized that I needed to start checking the credit report for me and my husband. I went to Annual Credit Report.com website to get our credit reports from Transunion, Equifax and Experian for free. I thought it would be a short review and then I could pat myself on the back for doing what I encourage everyone to do. Unfortunately, that was not the case.

If you have read any of my blog posts, you probably think my family is on a first name basis with the emergency room. Between my husband’s health issues and my recent car accident, I can probably get to the emergency room blindfolded. An ambulance bill we were unaware of popped up on my husband’s credit report from over a year ago.

I called and it turned out it was an old unpaid bill that we never received. It was sent to the wrong address and it was never sent to our healthcare provider. We contacted my husband’s health insurance company, sent them the emails verifying we were unaware of the bill and surprisingly, they paid the bill.

After a few months, we noticed that the delinquency was still on his record. We first contacted the creditor to ask for the information to be removed. After all, they got the address wrong and the bill was paid by the healthcare provider. They basically told us that there was nothing they could do.

We then disputed the bill online, providing supporting documentation (it took about 5 minutes) with all three credit reporting agencies. Credit reporting agencies must investigate disputed items, typically within 30 days. After about 30 days, I received an email stating that the information will be removed from our report. After another 30 days, the information dropped from our credit report.

Do not assume just because you pay your bills on time that your credit report is fine. Once a year, use a  checklist like the one on the Nolo website as a guide to reviewing your credit report. Review each section of your credit report for the following:

Personal information section: Make sure your name, address, social security number, birth date and phone numbers are correct, especially if you have a name shared by other people (John Smith, etc).

Public records section: Check for incorrect information or information that should no longer be reported  such as bankruptcies over 10 years old, tax liens you paid more than seven years ago, and criminal arrest record more than 7 years old.

Credit account section: Check to make sure that the credit history reported is actually your credit history and not mixed with someone with a similar name. Ensure that all of the accounts listed status is current. For instance, an account that should be closed is still listed as opened. Also check for adverse information over 7 years old.

Inquiry section: Review this section to make sure that the credit inquiries were done with your permission.

If your find inaccurate information, first contact the creditor, if possible, to dispute the item. If that does not work, then dispute the items with each credit reporting agency.  The credit reporting agencies are required to investigate. Taking these steps will go a long way to preventing any unpleasant surprises on your credit report, especially during critical times like a house or auto purchase.

 

 

DIY Credit Repair

July 07, 2015

One of my cousins came to see me excited over a meeting she recently had. If you know my cousin, she gets excited over air so I always have to proceed with caution every time she has wide eyes and a high pitched voice and looks like she is about to do a cartwheel. She was excited because she had just met with a credit repair company that promised that they can get all of her negative credit taken off her credit report and can get her score high enough so she could buy a home. Continue reading “DIY Credit Repair”

Don’t Pay For Free Stuff

April 24, 2015

I was walking down a long pier with my kids not too long ago and there was a big splash off to our left.I jokingly yelled “Free Willy” and my kids looked at me like I was having some type of out-of-body experience. They had no idea what I was talking about since the movie was made well before any of them were born, and while they’ve seen nearly every Disney and Pixar movie made since their birth, I guess they missed some of the older ones. They know way more about “Finding Nemo” than “Free Willy.”  Continue reading “Don’t Pay For Free Stuff”

Clean Up More Than Your House This Spring

April 14, 2014

As of this spring, it has been exactly two years since our family moved into our home after a cross-town move to be closer to our children’s school and their GiGi and PopPop. It’s amazing how fast time flies but it’s also disturbing how much junk we have accumulated in that short amount of time. (For the most part, when I say junk. I am referring to toys and gadgets for the kids and our dog.) Continue reading “Clean Up More Than Your House This Spring”

Personal Finance Tool Review: CreditKarma

February 17, 2014

Do we place too much emphasis on credit scores in America? Probably, but most of us aren’t completely debt-free. I’ve mentioned before that credit scores are not the “be all and end all” of your financial situation – but your credit score can help you lower the cost of borrowing money.  A higher credit score could save you thousands of dollars if you are in the market for a new home or refinancing because scores over 760 typically help you qualify for more competitive interest rates for a mortgage.  It is also important to note that routinely checking your credit report can help identify potential risks related to identify theft. It can even be difficult to obtain a job in some careers without a good credit report. Continue reading “Personal Finance Tool Review: CreditKarma”

Targeted on Christmas Eve

December 24, 2013

It’s Christmas Eve, and not a creature is stirring, except the thieves who stole credit card information from Target – they are probably  busy doing some last minute Christmas shopping with YOUR credit card information.  If you shopped at Target between November 27 and December 15, you could be one of the estimated 40 million credit and debit card accounts that may have been exposed to this breach.  (Only in-store purchases are at risk, so if you bought something online from Target over the past several weeks you were not impacted.)  Continue reading “Targeted on Christmas Eve”

It Takes More Than a Helmet to Protect Yourself Today

November 22, 2013

If you ask fans of the NFL what one of the biggest news stories of the year is, many would say “player safety.”  There have been numerous rule changes designed to limit the impact of violent collisions on players’ long term health.  This is especially true with hits to the head and neck.  Players can no longer use the crown of their helmets to tackle other players.  The hoped-for result is fewer concussions that can lead to serious long term health consequences. Penalty flags are common for dangerous plays now and very often players are fined significant sums of money for illegal and dangerous hits. The league and the NFLPA (the players union) take safety and protection very seriously.  Continue reading “It Takes More Than a Helmet to Protect Yourself Today”

Hey Mr. Planner, What’s in Your Bag?

November 04, 2013

I’ve always been fascinated by the game of golf or what Mark Twain referred to as “a good walk spoiled.” During childhood, I would spend hours at a time out in my yard creating my own imaginary course designs and pretending that I was at Augusta National competing for the coveted green jacket.  (My parents and neighbors were probably grateful that I was using plastic golf balls at the time as my errant shots often landed on cars and houses.)  Continue reading “Hey Mr. Planner, What’s in Your Bag?”

Credit Score Myths That Drive Me Crazy

January 18, 2013

When I meet with people who are dealing with building credit for the first time or rebuilding/repairing their credit after some financial misadventures, we often talk about the components of their credit score and how they can make an impact on that score.  Fairly often, someone will say “I have heard…” and then tell me something they’ve heard about credit scores.   After hearing the same “I have heard” items or myths repeatedly, I thought it might be a great time to address a few of them so that you can start the new year with a few facts instead of myths. Continue reading “Credit Score Myths That Drive Me Crazy”

Favorite Financial Resources That Help Me Manage My Money

November 21, 2012

This week, I’ve been asked to write on my favorite financial resources that help me navigate the financial universe.  There are literally thousands of resources dedicated to helping people manage their finances, but for me, it really boils down to just a few simple resources that have helped shape my views about money and have led me to a career teaching others how to manage theirs.  I’ve broken them down into the categories of philosophy, curriculum, and tools & resources: Continue reading “Favorite Financial Resources That Help Me Manage My Money”

What I Learned From Being a Victim of Identity Theft

October 26, 2012

A few years ago I was the victim of identity theft. Someone in Texas (where I’ve never lived…) was using my name and Social Security number and had gotten an apartment, satellite TV, utilities, and accounts with some local food establishments.  Oh, they went to the doctor a lot too.  Continue reading “What I Learned From Being a Victim of Identity Theft”

Why I Hate Credit Scores

July 20, 2012

Some of the most frequently asked questions that I hear in my individual financial coaching sessions deal with credit scores.  How can I improve my score?  If I mess up, how badly is my score hurt?  How long does it take for my score to improve once I get my act together and start having great financial habits?  These are all very good and very relevant questions for many people.  But one of my longer term goals in life is to have no use for a credit score and to not care one little bit what my credit score is.  Continue reading “Why I Hate Credit Scores”

The 2nd Biggest Problem With Free Credit Score Websites

June 27, 2012

I’m sure you’re quite familiar with those uber-annoying commercials with that band peddling “free” credit scores. By now, most of us have caught onto the trick behind these offers; they’re only free if you cancel your membership during the trial period. If you don’t cancel, your credit card will be charged a big fat fee – typically $15 to $30 per month. Worse yet, some of these services will charge you for 3 months at once when you forget to cancel… ouch! Continue reading “The 2nd Biggest Problem With Free Credit Score Websites”