10 Credit Tips You Need To Know and 6 Credit Myths

10 credit tips and 6 credit myths

Your Credit Matters!

 

Your credit score or Fico score determines the terms and interest rates you pay on your credit cards, car loan, mortgage loan and even the cost of your car insurance.  A lot of employers are now looking at your Fico score to make a decision on whether to hire you or not.  Your Fico score provides the best guide to future risk based solely on credit report data.

Credit scores will vary from a low 300 to a high 850

Your Fico score is the middle score from the 3 bureaus – Equifax, Trans Union and Experian

 

Credit Components


Past Delinquencies – 35%

Debt to Credit Utilization Ratio – 30%
Credit card balances should be 50% of the available credit line, better is 30%

Average Age of Credit15%
Don’t close credit cards older than 2 years – “seasoned” accounts are important
Collections don’t pay off

Mix of Credit – 10%
Every 1 installment trade-line, to 3 revolving trade-lines

Inquiries – 10%
on the credit bureau the window for duplicate inquiries is 14 – 45 days

 

Credit Score Rating

 760 or above / Excellent

720 – 759 / Good

700 – 719 / Ok

660 – 699 / Less than Ideal

Under 660 / Poor

 

10 Credit Tips You Need To Know

 

  1. Paid Tax Liens can be Removed
    Paid, Released or satisfied federal tax liens can be deleted from a credit report and all other public records within 30 days.
  2. Some Unpaid Tax Liens can be Deleted
    Federal tax liens can also be deleted if they have balances of less than 25k with on time payments to the IRS.
  3. Add Authorized Users to Increase Scores
    Adding authorized users can increase credit scores in as little as 3 weeks for free! No fees and no credit checks. Best of all, they cannot be denied.
  4. Add Secured Cards
    Lenders like to see 3-5 trade lines.  Adding secured cards can help improve the credit profile. This needs to be structured a certain way but is extremely effective within a couple months.  https://openskycc.com/
  5. Keep Balances Below 30% of Available Credit
    Credit card balances should be below 30% of credit all the time. Try increasing your balances or if you need more credit, get more trade lines
  6. Consolidate Student Loans
    If student loans are in default, they can be consolidated and transferred to the U.S. Department of Education.  This will make a huge difference in score and overall approval strength.
  7. Put Burden of Proof Back on Creditor
    Collections and charge-offs are deleted at roughly 70%. They generally don’t have the documentation to support the account properly and you can put the burden of proof back on the creditor.
  8. Fix Inaccurate or Additional Personal Information
    90% of credit reports have additional personal information that is either inaccurate or dated. I’ve seen scenarios with 6 different names, 2 social security numbers and several addresses. This can be update pretty quickly. This helps remove inaccurate information that’s reporting on the credit file.
  9. Limit Credit Inquiries
    You should only have 7 inquiries a year. Anything more than that can affect the score.  Depending on the credit bureau the window for duplicate inquiries is 14 – 45 days
  10. Setup Automatic Bill Pay
    This will ensure your bills get paid on time!

 

6 Credit Myths

 

  • Opting out of credit card offers
    Many consumers assume if they opt out of credit card offers, there will be fewer credit inquiries on your credit report.  However, those inquiries are considered “soft” inquiries and don’t affect your credit score.  You can keep the offers coming in!  If you want to opt out of offers to reduce your junk mail, you can call 888-5-OPT-OUT / 888-567-8688 or visit OptOutPrescreen.com.

 

  • Closing old accounts
    This is a hard myth to kill!  Closing accounts will not help your score and in most cases it will actually do the exact opposite.  15% of your credit score is based on the “Average Age of Credit”.  The longer the history of each account, the higher your credit score.  Closing accounts can also leave you will less available credit and 30% or your score is based on “Debt to Credit Utilization Ratio”.  Say you have $450 in debt with $1000 in allowable credit across multiple accounts and you close a credit card with a limit of $500.  You have taken your ratio from 30% to 90% utilization.

 

  • Opening many accounts
    Some consumers with credit challenges believe opening may accounts will be proof that you have recovered and can handle credit.  Actually, it has the opposite effect.  It’s actually a sign of risk.  You will want to establish just a couple new accounts to re-establish your credit history. This will affect you’re the “Inquiries” made and represents 10% of your credit score.

 

  • Paying off collections
    Paying off collections can drastically drop your fico score!When you’re trying to improve your credit score you may think paying off old collections will help.  This isn’t true!  You may be surprised to learn that paying off old debt could have a major impact to your score.The reason why; is when you pay old debt the credit bureaus adjusts the date on the collection to a current event.  One of the 5 components in determining your fico score is the “Average Age of Credit” and it’s 15% of your score.
    • Ethically you want to pay your debts but here’s my tip.
      Make sure you first get in writing that the collection company will remove the debt upon full payment.Write a check!  And here’s the verbiage for your letter“By cashing this check Payee agrees to accept this check in full payment of the account as agreed and agrees to remove all derogatory information from Remitter’s Credit Reports.”If the bureaus’ don’t adjust your report accurately you’re now covered because you have of copy of your cancelled check and letter signed from the collection company.Doing it the wrong way, could result in a much higher interest rate or even worse prevent you from qualifying for your home mortgage loan.

 

  • Paying off loans early is better than making payments
    Financially not owing money is better because of the interest cost but if your goal is to build your credit score, you want to owe something because it will affect your “Average Age of Credit” representing 15% of your score and possible “Mix of Credit” representing another 10% of your score.As long as the ratio of what you owe is 30% or less then the available credit so you are not affecting your “Debt to Credit Utilization Ratio” that represents 30% of your credit score, it is better to not pay it off.The reason is a paid off account only shows good payment behavior in the past but if your managing a balance it shows presently that your managing your credit wisely and will help your credit score.  Keep the balance low so the cost of interest is low.  If your credit limit is $1000 you would never want to owe more than $300 because of the 30% ratio.  Increase your limit if you have to, to ensure utilization does not exceed the 30% target to ensure the best credit score results!

 

  • You can bump hard inquiries off your credit report
    A “hard” inquiry is generated when creditors pull your report after you apply for a loan.  Your score falls because it shows you’re interested in taking out more debt.  Other inquiries are considered “soft” pulling your own credit, employer’s pulling your credit or companies sending credit card offers in the mail.  These do not affect your score.Some consumers believe if after applying for a loan, you pull your credit report every day to load up on “soft” inquiries, you’ll bump off the hard ones.  This is not true! “Inquiries” represent 10% of your credit score.