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Credit Scores

5 Factors That Impact Your Credit Score

By | Credit Scores

Like it or not, your credit score probably affects where you live, the car you drive, the smartphone you use, and how you take vacations, go to college and care for your family. Even with a moderate or lower income, it’s important to understand the factors affecting your credit score. With smart moves and strategic thinking, you can build a foundation for the future and enjoy the benefits of plentiful low-interest credit. Here are the five factors to remember every time you’re considering a loan, card or new account:

1. Number of Accounts

Every time you open an account that requires faith in your ability to pay on time — and this includes phone lines, utilities and student loans — you add a record to your credit history. Most financial advisors recommend limiting yourself to the average amount of three or four cards. The reason is simple: The more cards you have, the higher chance you’ll miss or forget due dates. Alternately, you should get at least one card if you don’t have one. This is because you can’t build credit without having any.

Obviously, you can’t control the number of accounts for life necessities like heat, electricity, internet and phone. You can, however, limit the number of student loans, car loans and mortgages. If you’re married, work it out so both you and your spouse hold accounts for things you share. One partner might pay the power bill, the other the internet. This practice also allows each partner to practice good financial management and build a healthy score.

2. Age of Accounts

A long time ago, you took on a high-interest or secured credit card as a way to improve your score. Should you close that account when a better card comes your way? Maybe, but probably not. The age of your accounts is another factor that affects credit rating, so an old account is a plus instead of minus. Just make sure you have a low balance, no more than five percent of the limit, and pay on time to avoid fees. Be aware that closed accounts will drop off your record after a certain period of time — usually seven years. Keep track of open accounts by looking at your credit report frequently.

3. Number of Inquiries

Although it can be frustrating and seem unfair, your score is affected when lenders considering your request for a mortgage, business loan or credit card request your credit report. Sometimes, your credit history is also accessed by potential employers, agencies checking your background, or other instances in which your character may come into question. Keep the number of inquiries in check by planning ahead. Be strategic about major purchases, like a car, that will cause numerous checks on your credit as you search for the best financing. By limiting the number of inquiries in the months before the purchase, you’ll suffer less damage when lenders look at your record.

4. Outstanding Debt

Imagine that every cent of your credit is poured into a single, large bucket. This bucket, the total amount of credit assigned to you, is marked with three gauges — green at the top, yellow in the middle and red near the bottom. The point where the contents of the bucket settle represents your debt-to-credit ratio, one of the most important factors of a credit score. As a rule, your credit card balance shouldn’t be higher than one-third of your total allowed credit. Why? Consider how your high balances look from the viewpoint of lenders — if you have a crisis or emergency and no means to pay with your credit, the chance of late payment or bankruptcy increases.

5. Payment History

When you pay and how much is another important factor of total credit score. Establish the good habit of paying more than the minimum amount due to offset any interest charged to the account. When possible, pay all but five percent of the outstanding balance due. Leaving a small amount due in each account shows the account is active and confirms your commitment to the lender, but don’t forget it’s there, forget to pay and be charged a late fee.

If you have a record of late payments, it’s possible to recover. Pay a few payments on time and then call the lender and ask them to remove the negative mark. They might not agree, but you’ll never know unless you ask. The same goes for accounts in collections — once you are in the position to pay off the debt, call to negotiate with the agency or lender. Many times, they will reduce the total amount due if you agree to pay the amount due and close the account. Also note that you should speak carefully and cautiously when talking to debt collectors on the phone. Review your rights with a credit counselor first.

By setting goals, paying on time and making a sincere effort to raise your score, you can earn the good things in life. Low-interest credit opens doors to opportunities like self-employment, travel and education. Now that you know more about how credit scores are calculated, it’s time to get yours in shape for a better and brighter future.

Sources

TransUnion.com: “What is a credit score?” https://www.transunion.com/credit-score

Credit Karma.com: “How many credit cards does the average American have?” https://www.creditkarma.com/credit-cards/i/how-many-credit-cards-does-the-average-american-have/

TransUnion.com: “How closing accounts affects my credit score”: “https://www.transunion.com/article/closing-accounts-and-your-credit-score”

repair credit

6 Ways Your Credit Score Impacts Your Life

By | Credit Scores

If you’re like most people, you won’t know your credit score until you suddenly realize it’s important. Normally, this happens when you apply for a mortgage or another large loan.

You see, you might be ignoring your credit score, but banks, businesses and other lenders aren’t. For these users, your credit score is a vital snapshot of your financial well-being and trustworthiness, and it enables them to manage their risk when lending to you, hiring you or selling you their services. It’s the culmination of every large financial decision you’ve ever made — and it can have a significant impact on your future decisions.

Let’s take a look at some of the significant ways in which your credit score impacts you.

1. The Interest Rate on Your Mortgage

Your mortgage is likely to be the biggest loan you take out in your life, and your credit score plays a significant role in determining which mortgage you can get and how much it is going to cost you. Applicants with a low credit score, indicating potentially risky financial behavior, are likely to have to pay a higher interest rate on their loan and, in some cases, may be rejected outright.

A small change in the percentage of interest you pay might not seem like much, but with many mortgages stretching from 25 to 35 years, it represents thousands of dollars of extra spending.

2. Whether You Get the Rental Property You Want

Not bought a house yet? Your credit rate still affects your choice of home. After your earnings-to-rent ratio, your credit score is the most important factor in deciding whether your rental application is accepted. Given the choice of two applicants with similar earnings, the one with the higher credit score will always win — landlords know that by reducing their risk, they save money.

3. The Car You Drive

In 2017, the average auto financing loan had an APR of 4.21 percent, with most loans falling between 3 percent and 10 percent APR. The difference between a great credit score and a very poor one is even bigger: Someone with a very bad record might receive as much as 20 percent, while some users with a great record can still get zero percent APR. The difference between the two can easily amount to hundreds or even thousands of dollars per year.

4. Your Refinancing Options

As interest rates change, what seemed like a good deal a few years ago can quickly become expensive; by refinancing your mortgage or student loan, you can save a lot of money. Unfortunately, if you have poor credit your ability to do this may be limited or nonexistent.

It doesn’t matter what your credit score looked like when you first got the loan, either. Many borrowers have a good score when they get their mortgage, then fall into bad practices. When they try to refinance, their now-reduced credit score limits their options and gives them a nasty shock.

5. Your Employment Opportunities

Many employers like to credit-check job applicants before making a hire, particularly if the role comes with a large amount of financial responsibility. Although they’re not lending you money, the business is exposing themselves to risk of another kind by putting their finances and reputation in your hands. By screening out applicants with a poor credit score, businesses aim to reduce workplace theft and fraud.

6. Taking Out a Student Loan

If you’ve already borrowed the maximum federal student loan amount, it’s likely you’ll need to turn to a private loan to make up the difference to cover your tuition. These private loans (issued by a bank, credit union or school) are affected by your credit score, just like a mortgage or auto loan. This can come as a shock to students who have only dealt with federal loans before (which aren’t affected by credit score).

You’ll probably be paying off your student loan for years to come — a poor credit score could add thousands of dollars to the amount.

The Impact Can Be Positive or Negative

We’ve primarily focused on the negatives of having a poor credit score in this article, but at the other end of the spectrum are a bunch of people who get great deals on everything. Their above average credit score enables them to get better mortgages, cheaper loans, and superior work and housing opportunities. And because their interest rates are lower, maintaining their score is easier — it’s an unfortunate fact that the high interest rates those with a low score receive make it harder for them to improve that score.

Achieving Your Desired Credit Score

There’s no such thing as an irredeemable credit score; with time, effort and discipline, anyone can improve their score and access better rates. But, it doesn’t happen overnight — it takes time. Which means that the best time to improve your score is always now. You need to start preparing your credit score in advance if you want to get the best deals on a mortgage.

Unfortunately, the information on your credit profile doesn’t always tell the whole story — through no fault of your own, this information can be incomplete or even inaccurate. When that happens, your best bet it to repair your credit profile.

Ovation Credit Services helps the 79 percent of consumers whose credit reports contain a mistake of some kind. Sign up today and take the first step toward repairing your reputation!

5 Reasons Why Paying Your Bills on Time Is Not Enough

By | Credit Scores, Uncategorized

Accounting for 35 percent of your credit score, payment history is the number one factor affecting your credit standing. A single missed payment could lower your credit score by 60, 80 or 100 points, depending on the date of the late payment and your current credit score. Generally speaking, higher scores are hit harder by late payments than lower scores and older late payments have less impact than recent ones.

If you want great credit, you must pay all of your bills on time — that’s a given. However, excellent payment history alone will not give you the credit score you desire. You must also pay attention to the factors that make up the remaining 65 percent of your credit score.

5 Factors That Influence Your Credit Score

Credit scoring models look at a variety of factors when calculating your score, including payment history, credit card utilization, length of credit history, mix of credit and inquiries.

1. Credit Card Usage

With the exception of payment history, credit card utilization impacts your credit score more than any other factor. A whopping 30 percent of your credit score depends on it. Your utilization score represents the percentage of revolving debt you have in comparison to the total amount of revolving credit available to you. Most revolving credit comes in the form of credit cards, but it can also include any other type of revolving credit, such as a revolving loan.

Ideally, your credit card utilization should be 30 percent or less. For example, if you have $5,000 in revolving credit, your total balances should add up to no more than $1,500. To find out your utilization percentage, divide your total balance by your total credit then multiply the answer by 100.

2. Length of Credit History

The length of your credit history accounts for 15 percent of your credit score. To calculate your length of history, credit scoring models determine the average age of all credit accounts listed on your credit report. Closed accounts that have fallen off of your credit report are not considered.

When it comes to credit history, there is no magical number you should strive for. However, the longer history you have, the better.

3. Mix of Credit

Accounting for 10 percent of your credit score, your mix of credit depends on the types of credit accounts listed on your credit report. A diverse mix that includes installment loans, revolving credit and secured credit is best. The following is a brief explanation of each type of credit.

  • Installment loans: Personal loans, student loans, furniture loans
  • Revolving credit: Credit cards, retail credit cards, gas cards
  • Secured credit: Auto loans, home loans, equipment loans

For the best possible score, maintain a mix of credit accounts but don’t go overboard. A single installment loan combined with two credit card accounts and an auto loan is sufficient to show how you manage different types of credit.

4. Hard Credit Inquiries

There are two main types of credit inquiries: soft and hard. Soft inquiries are initiated without your knowledge by companies screening you for pre-approved offers. They do not affect your credit score.

Hard inquiries, however, account for the remaining 10 percent of your credit score. Hard inquiries include any and all credit applications initiated by you or by a lender on your behalf. Scoring models look at two factors when considering hard inquiries: the number of inquiries present and the date they were initiated. Older inquiries carry less weight than newer ones.

5. Multiple New Accounts

Too many new accounts can lower your score by decreasing your length of credit history and increasing the number of hard inquiries appearing on your credit report. For this reason, you should avoid opening multiple accounts within a short amount of time. Strive to wait at least six months between credit applications.

How to Improve Your Credit Score

To improve your credit score, take steps to address and optimize all of the factors affecting your credit score. The following tips will help you.

Improve Payment History

Do this by making all payments on time. If you have late payments listed on your credit report, contact the lender to see if there is a remedy. You may be able to restructure your loan or set up a payment arrangement in exchange for the removal of the delinquency from your report. This only works if your account is not currently in collections.

Lower Credit Card Utilization

Do this by paying down your credit card balances or asking for a credit limit increase on one or more of your revolving accounts. Remember, balances should account for no more than 30 percent of your available credit.

Increase Length of Credit History

This can be accomplished by being patient and letting your credit profile age. Avoid obtaining new credit, as this will shorten the average length of your credit history. Also, consider leaving older accounts open even if you’re not using them.

Diversify Mix of Credit

You can do this by obtaining new types of credit. If you have two or more credit cards, do not apply for more revolving credit. Instead, consider taking out a personal loan.

Decrease Hard Credit Inquiries

Do this by spacing out your credit applications. Only apply for credit if it’s absolutely necessary. Note: multiple inquiries for a car loan or mortgage are often grouped together and only considered as one inquiry, provided they occur within a reasonable time frame.

Credit scoring models are complicated and mysterious on purpose. Credit agencies do not want you to know or understand the exact formula they use to calculate your credit score. However, they offer enough transparency for you to optimize your credit profile in an effort to earn the best possible score. If you learn all you can and take steps to improve your credit profile, you will see your score improve over time.

Sources:

www.blog.equifax.com/credit/can-one-late-payment-affect-my-credit-score/

www.thebalance.com/understanding-credit-utilization-960451

www.creditcards.com/credit-card-news/length-credit-history-fico-score.php

www.myfico.com/credit-education/questions/how-do-inquiries-impact-credit-scores/

Credit Utilization: Master This Key Scoring Factor

By | Credit Scores

Imagine two people borrowing the same amount of money from the same lender. One has a stellar credit utilization ratio. The other has a relatively poor number. Well, the first person could end up paying thousands of dollars less than the second individual due to a lower interest rate.

Your credit utilization rate accounts for 30 percent of your overall credit score. Given its significance, you should strive to make yours impressive.

Credit Utilization Rate

 

Calculating Credit Utilization

To figure out your credit utilization ratio, take your monthly balance and divide it by your credit limit. Let’s say you have a credit card with a $2,000 limit. Last month, you charged $200 on it. When you divide 200 by 2,000, you get 0.1. Thus, last month’s utilization ratio for that card is 10 percent.

Your credit reporting agency will give you a utilization score for each of your credit cards as well as other types of credit like home equity loans. It will also assign you an overall credit utilization score. The agency will compute that comprehensive number by adding all of your balances and all of your limits and then dividing the first sum by the second.

If your credit utilization score is too high, it’s harder to obtain loans with favorable terms. That’s because potential lenders will see you as someone who charges too much and who may, at some point, have trouble making loan payments.

Know Your (Credit) Limits

For a credit utilization score, the magic number is 30 percent. Try not to go over it. A strong utilization rate is between 10 and 20 percent, and an exceptional one is less than 10 percent.

To stay below the 30 percent mark, always monitor your credit card limits. If a credit card issuer lowers your limit, rely on that card less often. Conversely, if a credit card company raises your limit, you can feel free to use that card a little more frequently. Similarly, keep checking your balances online. If you’re coming close to 30 percent on one of your cards, don’t touch it again until next month.

Your credit card companies might have a program wherein they text you when you’ve hit a certain percentage of your limit. You could ask them to let you know when you’ve reached 20 percent or so.

Credit Card Carefulness

If your credit utilization score is currently higher than 30 percent, don’t worry too much. You can bring it down soon enough. Your first step is to carry more cash and keep more money in your checking account. That way, when you shop for groceries, clothing and other personal items, you can leave your plastic in your purse or wallet.

In addition, don’t shop on the Internet as much. Or, if you must buy products from digital stores, get in the habit of using a debit card rather than a credit card. Always search cyberspace for deals and discounts, too.

Higher Credit Lines

You might want to get in touch with one or more of your credit card issuers to apply for a limit increase. Just be aware that a credit card company must conduct a hard inquiry on anyone who makes such a request. A hard inquiry will probably lower your credit score a little.

Seeking a limit increase carries some risk. If your credit history isn’t in good shape, your credit card company could choose to reduce your limit instead, putting you in an even worse predicament.

On the other hand, if your credit report is exemplary, you could receive a credit limit increase without even asking for it. Either way, with a greater limit, you could spend the same amount of money, but your utilization rate would still go down.

In any event, approach a higher credit limit with caution. When you’re granted one, it’s natural to start spending more. And, unfortunately, it’s easy to go too far. In short order, you could be facing a higher credit utilization rate and mounting debts.

Shaky Strategies

Could you lower your utilization ratio by getting more credit cards and spreading out your spending? It’s possible, but you should resist that idea. A credit reporting agency might view your new credit cards in a negative light and lower your score accordingly. Not to mention, every time you apply for a credit card, the issuer will have to do a hard inquiry.

Plus, with extra credit cards, it becomes more likely that you’ll charge more than you can afford or forget to make a payment.

Give Yourself Some Credit

Finally, it’s a great idea to partner with a credentialed credit repair company. Its team members can study your credit history and find mistakes, questionable entries and other problems that are unfairly bringing your scores down, including your credit utilization ratio. Those pros can then contact your credit reporting agencies and convince them to fix the inaccuracies.

Knowing that your credit utilization number is going in the right direction should give you feelings of pride and security. Getting a low interest rate and advantageous conditions on your next loan or mortgage will feel even better.

Sources:

https://www.forbes.com/sites/financialfinesse/2016/12/04/how-to-improve-your-credit-score-quickly/#69802877499a

http://www.military.com/money/personal-finance/credit-debt-management/what-should-your-credit-utilization-be.html

http://money.cnn.com/2017/05/08/pf/credit-score-tips/index.html

https://money.usnews.com/money/personal-finance/articles/2012/07/24/tips-for-maximizing-your-credit-score-when-it-counts-most

https://www.nerdwallet.com/blog/finance/credit-utilization-improving-winning/

https://www.thebalance.com/understanding-credit-utilization-960451

FICO vs. FAKO vs. VantageScore

By | Credit Scores

FICO vs. FAKO vs. VantageScore – Things can get confusing when you try to learn about your credit rating. You might get a free credit monitoring service and be happy to receive a free score. However, the number you get is not necessarily accurate — and sometimes it is off by 100 points or more.

To put it simply, your FICO score is the most accurate estimate of your credit rating. Your FAKO score is a non-FICO score. It is not as accurate, but it still gives you a good idea of your score. Your VantageScore is similar, except it stands a better chance of getting used by a prospective borrower.

Fico-Fako-VantageScore

Understanding FICO Scores

There are more than 50 FICO score versions that exist. The most common ones are the FICO Auto Score, Bankcard Score and FICO Score. The particular model which gets calculated is dependent on the type of loan you require. For instance, a mortgage would use a basic FICO Score version while a credit card could get applied for with your Bankcard Score.

The way your FICO score gets calculated is dependent on the version. Typically it will range from 300-850 points. The calculation breakdown is as follows:

  • 35 percent for payment history
  • 30 percent for credit utilization
  • 15 percent for average credit age
  • 10 percent for new accounts
  • 10 percent for credit diversity

Your FICO score will get calculated individually with each of the major credit bureaus. A borrow can have different information with each of their reports. A lender will also choose one of the bureau files to pull. Therefore, your qualification requirements and score can vary depending on the information you have with each file.

The vast majority of lenders determine your eligibility by looking at one of your FICO score calculations. This is the figure you should use when attempting to improve your credit, as well.

Why Your FICO Score is So Important

Nine out of 10 lenders in America are using a FICO scoring model to determine financing eligibility. The most common model is your basic FICO score, which uses the calculation algorithm listed above. However, the way your score calculates can slightly differ depending on the purpose of the financing.

Your Auto Score

This credit rating algorithm is all about making sure you can afford a new vehicle. It looks at your overall monthly affordability based on your current debt obligations. An auto lender will be able to overlook certain things that a credit card issuer might not put past them.

Your Bankcard Score

This particular credit rating model looks more at your credit card debt than anything else. It puts a greater amount of weight into your credit card repayment history than your installment loan repayment activity. This makes it a more effective scoring model for credit card issuers trying to vet you.



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Understanding Your FAKO Score

FAKO scores consist of any credit ratings that are not made up by FICO. The majority of these exist for credit score tracking purposes. You can look at the calculation from month-to-month and get an idea of how your score is progressing. Any positive or negative action will impact as such, but your rating won’t always line up with your FICO score.

There are very few lenders that qualify you based on your FAKO score. It can be a method for pre-approving prospective borrowers. However, the majority are going to request one of your FICO scores from a major bureau. So, you should not put too much weight into your FAKO score.

Some of the more popular credit-based services/websites to offer a FAKO score include:

  • Credit Karma
  • Credit Sesame
  • Quizzle

Each of these companies offer both free and premium credit monitoring services. They serve as an indicator of your credit-building progress. However, it is not enough to go on when determining whether you qualify for a major loan. You should always stick with your FICO score calculations when buying a car or home. Not to mention, the scoring zone (in points) differs and does not always follow FICO’s path.

The Problem With FAKO Scores

There are many different FAKO scores out there and there is not a universal way to calculate yours. In fact, a FAKO score could vary by hundreds of points depending on the algorithm that the calculating company uses. Any sudden changes to your credit report can have a major impact, as well.

Any prospective lender will not generally use your FAKO score. However, a bureau-based score might come into play when trying to pre-approve you for new credit. This means a FAKO score could be an initial screener and sometimes it can be used to bypass a hard inquiry. With a soft pull and a score estimate, some lenders have enough to go on to make their decision.

Here are some other issues with using FAKO scores:

  • No lenders actually use it when screening new applicants
  • The score you see could be very different elsewhere
  • Any single missing entry can severely skew your score
  • Missing a negative item could severely disfigure your perception

Basically, following your FAKO score can send you down a troubling road. It just takes one negative instance to send your FICO score dropping. However, this might or might not happen with your FAKO score calculation. You could be lead to believe your credit is still running strong — when that is not actually the case.

Credit Score

Which Credit Score Are You Getting?

The services above are all very popular and more than one-third of Americans have an account with at least one site. So it is a good idea to know the difference in credit-scoring between each of them.

  • Credit Karma offers your Equifax and TransUnion scores
  • Credit Sesame includes your Experian National Equivalency score
  • Quizzle provides you with your Vantage Score rating

You should research and choose a credit monitoring service with care. The difference in the effectiveness of your credit score estimates will follow.

Typically, your VantageScore rating will be a more accurate guess of your FICO score. But you have to take into consideration the unique information found on your file at each of the credit bureaus. Any missing positive items will hold your credit rating down on a particular report.

Understanding Your VantageScore Rating

Once upon a time, your VantageScore would make up for approximately 10 percent of your loan qualifications. It is now not so dominant, but there are still quite a few lenders that consider this score.

Your VantageScore 3.0 rating will fall in the 300-850 point range. The main calculation factors are as follows: your payment history, credit age, type, utilization, available credit, total balances and debts, and recent credit behavior.

The main difference with your Vantage Score is that you put more weight in your average credit age. This is less of a factor than your utilization rate with your FICO score, but that is not the case with your VantageScore calculation.

Here is why your VantageScore rating still matters:

  • Nearly 10 percent of lenders use it
  • Works well for ongoing credit risk analysis
  • Provides a fair calculation even without 2 years of payment history
  • Any score changes are systematically calculated with each new entry

Furthermore, there are approximately 30 million more Americans with calculable credit scores using this model over any other. This means that even thin file borrowers and people in credit despair can benefit from following their VantageScore rating.

Conclusion

There are three different sets of credit scores that exist — FICO, FAKO and VantageScore. Each are useful in their own right, but only your FICO scores will truly matter in the end. You should not get caught up in tracking the others as anything more than a general indication of your progress from month-to-month.

It is understandable that you cannot pull your report and get a proper calculation every single month. Instead, all you can do is track your report changes monthly and estimate the score impact.

Sources:

http://myfico.custhelp.com/app/answers/detail/a_id/469/~/fico%C2%AE-score-versions-included-in-your-credit-report

http://www.doctorofcredit.com/credit-scores/fako-score/

https://www.vantagescore.com/images/resources/VantageScore3-0_WhitePaper.pdf

https://www.quizzle.com/resource-center/credit-q-and-a/how-is-my-vantagescore-credit-score-calculated

http://www.myfico.com/crediteducation/how-lenders-use-fico-scores.aspx

https://blog.smartcredit.com/2010/05/01/what-is-an-auto-credit-score/

5 Biggest Credit Score Myths Debunked

By | Credit Scores

Credit Score Myth

Your credit score plays an important part in your life. Whether you realize it or not, that three-digit number can impact whether you are hired for a job, the interest rate on your credit card, and even your mortgage payment. Yet, around 40 percent of Americans never bother to check their credit ratings, and many people simply don’t understand how credit scores work.

Let’s put a stop to that. Here are five of the biggest credit score myths, and the truth behind the lies.

Credit Score Myth 1 -You Only Have One Credit Score

One of the biggest credit score myths is that each person only has one credit score. The reality could not be further from that misconception. The truth is that each credit reporting agency has its own method for calculating your credit rating, and many lenders have their own system, too.

There are three main credit reporting agencies — Equifax, Experian and TransUnion – but they aren’t the only ones in the game. There are lots of credit reporting agencies in the United States. Then, there are the companies like FICO and Beacon that have their own systems for figuring your credit score. The worst part is that, depending on the algorithm each one uses, your credit score could vary significantly.

Credit Score Myth 2 – The Fewer Credit Cards You Have the Better

Another popular credit score myth is that the fewer credit cards and loans you have, the higher your credit score will be. People, believing the lie, close their accounts and pay off loans early in an effort to boost their credit scores, but when the dust settles, their credit scores are often lower than they were before they closed those accounts.

The reason comes down to the amount you owe relative to the available credit you have. It is called credit utilization, and it has a major impact on your credit score. If you close your accounts, the amount of available credit you have also goes down and your credit utilization rate increases in response. In turn, your credit score takes an unnecessary hit. Ideally, you want to have a large amount of credit available and be using a small percentage of it.

Credit Score Myth 3 – Your Credit Score Is Affected by Your Income

The idea that your credit score is impacted by your income is a common myth, and it couldn’t be more false. Your credit score is calculated using many different factors. Whether you have paid late or missed a payment, how much you owe, your credit history, the number of new accounts you’ve opened, and the types of credit you carry all figure into your credit score to varying degrees. Income is not part of that picture.

While a creditor or lender may use your income in tandem with your credit score to make a decision about whether to grant your loan or allow you to open a credit card, if someone such as your insurance company or a potential employer runs your credit score, your income does not come into it. In fact, credit reporting agencies do not even have access to that information.

Credit Score Myth 4 – One Late Payment Isn’t a Big Deal

The mail gets lost. You misplace your statement. The dog eats your bill. Late payments happen. However, they have a bigger impact than you might expect. “Payment history is typically the single largest factor in a credit score,” explains Discover. Your payment history makes up about 35 percent of your credit score, and some places may weight it even higher – the penalty can be severe. According to Discover, “Missing one payment could wind up on your credit report for up to seven years. What’s more, in the short term, it can drop your score by more than 100 points.” That’s enough of a drop to cost you an opportunity or at least qualify you for a far less advantageous interest rate.

Credit Score Myth 5 – Your Credit Score Is Accurate

One of the most dangerous myths about your credit score is that it will always be accurate. After all, why check your credit score if you can’t change it? As it turns out, there are some pretty big reasons to keep an eye on your credit score.

According to a 2013 study by the Federal Trade Commission, “one in four consumers identified errors on their credit reports that might affect their credit scores,” and for around 5 percent of people, those errors were significant enough to result in paying higher interest rates. The FTC also found “slightly more than one in 10 consumers saw a change in their credit score after the CRAs modified errors on their credit report.”

Moreover, the study found that one out of 250 people had an error on their credit report that resulted in a change of over 100 points after the inaccuracy was corrected. It is for this reason that the government allows you to check your credit report from each major credit reporting agency once a year. It is also the reason that so many companies provide assistance in correcting credit report errors.

With this much misinformation out there, it can be hard to know what to do about your credit score. You need a trusted adviser who knows what goes into a credit score, as well as how to correct errors in your credit report. Ovation Credit Services can help you make sure your credit report is accurate and provide you with the guidance you need to improve your score and reach your financial goals. Contact us today for a free consultation.

How to Improve Your Credit Score

By | Credit Scores

Improve Your Credit Score

If your credit score is not great or even good, don’t despair. You have the power to change it. It might take months or possibly years to get close to the coveted 850 credit score, but it can be done. You can get started by taking these tips into account.

Check Your Credit Report

The most effective way to improve your credit score is to keep a close eye on it. Start by ordering your free credit report from AnnualCreditReport.com — everyone gets one free report every year. It won’t tell you your score unless you pay a fee, but it will let you instantly see all the accounts that add up to your credit rating.

Your first goal should be to make sure your report is accurate, starting with your contact information, birth date and social security number. Then look at the accounts on your report. They should all look familiar. If you see any accounts that you did not open, you should follow the steps on the site to get the errors fixed. Similarly, if you see late payments reported that you know you made on time or you see derogatory marks that don’t belong there, you can contact the creditor. If the creditor does not fix the error, you can dispute it.

Establish Credit by Using a Credit Card Responsibly

If your credit report is pretty bare, it may be time to get a credit card. You might wonder how that will improve your credit score since most people are advised to avoid credit cards. But the fact is that you need to show the credit bureaus that you can handle credit well. This is hard if you don’t have any accounts to handle yet.

This doesn’t mean you should go out and apply for a car loan or mortgage to improve your credit score. You won’t have much of a shot at these types of loans if you don’t have any credit to your name. Instead, start by getting a credit card. Your best bet is to apply for a secured credit card. With this type of card, you pay either a portion or the total amount of your credit limit upfront and then use the card. Since you pay the creditors ahead of time for this type of card, you know you’ll likely be approved, even without any credit history. Then you can work on building your credit by making your payments on time.

If you already have some credit, but what you have is poor, you may be able to get an unsecured credit card to improve your credit score. The only catch is that you might have to apply for a credit card for people with bad credit, which may have a high interest rate. But the good news is that once you get one, use it regularly and make your payments on time, you will improve your credit score so you can eventually apply for credit cards for people with good credit.

Pay Your Bills on Time

If the main issue with your credit report is that you have a lot of late payments that were reported to the credit bureaus, you can turn it around by making sure you never miss a payment again. Even if you can only make the minimum payment some months, it’s crucial that you pay on time. Otherwise, you will likely be facing fees and a lower credit score after it gets reported to the bureaus. And if it’s a credit card payment you missed, you might also end up with a higher interest rate.

This is why many people with good credit automate their payments so they always get paid on or before the due date. If you are ever having trouble paying a bill, your first step should be to contact your creditor to see if you can make arrangements to pay late without it affecting your credit score. And keep in mind that the longer you pay all your bills on time, the less your score will be affected by any late payments you made months or years ago, which means it’s never too late to get into this habit.

Pay Down Debt

One of the best ways to improve your credit score is to keep your credit utilization down. More specifically, you should strive to keep your credit card balances at less than 30 percent, meaning you have at least 70 percent available. If you’re a little above that, just keep paying down your balances.

You can also get faster results by requesting a credit limit increase, which will automatically reduce your credit utilization. Just be sure you don’t spend more once you get an increase! And if your credit utilization is already around 30 percent or less, keep paying it down, since many people with the best credit scores boast credit utilization of 10 percent or less.

Get Help from Credit Experts

If you’re feeling overwhelmed as you work to improve your credit score, you can come to us for help getting started. We’ll give you a free credit consultation so you can see what you need to improve on your credit report. We’ll also help you dispute inaccuracies on your report and monitor your credit so you know about any changes to your credit right away. Contact us today if you’re interested in getting help improving your credit score.

Sources:

http://www.bankrate.com/finance/debt/7-simple-ways-improve-credit-score-1.aspx

http://www.myfico.com/credit-education/improve-your-credit-score/

http://www.experian.com/blogs/ask-experian/credit-education/score-basics/improve-credit-score/

Better Credit Score Means Cheaper Car Insurance

By | Credit Scores, Insurance

Car-Insurance-Credit-Score-Ovation-Credit

There are many benefits to having a better credit score. If you’re buying a house, it will be obvious you need excellent credit first. The difference in your interest payments could run $50,000 or more if you don’t bother.

The same situation exists when you’re getting car insurance.

That’s right, even your car insurance premiums are influenced by your FICO score. So improving your credit rating can save you money every month — and not just on your debts.

Meet the Credit-Based Insurance Score

There’s a credit rating for insurers to use that’s provided by FICO. It’s a credit-based insurance score, and most car and home insurance companies use it.

Home insurance rates can go up quite a bit if your score drops and a claim is made. This is because the risk of a fraudulent claim is higher if you’re struggling to afford the payments.

Car insurance companies are also known for jacking up premiums after claims are made. This is why many choose to pay off the cost of repairing the other person’s vehicle after a minor accident.

In reality, a poor credit score can result in a huge increase in your premiums. One incident can cost you $5,000 to $10,000 or more in the course of a year. The difference is an additional $400 to $800 out of your pocket every month to stay on the road.

How Does the FICO Auto Insurance Score Work?

Here’s how FICO calculates your auto insurance score:

  • Payment history (40 percent),
  • Outstanding debt (30 percent),
  • Credit history length (15 percent),
  • Pursuit of new credit (10 percent) and
  • Credit mix (5 percent).

This is only a little different than the traditional FICO score breakdown. You see 5 percent more importance on your payment history in the credit-based insurance score. This difference comes from a reduced emphasis on your credit diversity.

Remember: The Laws Vary by State

Not all states allow car insurance providers to use credit-based FICO scores. You can find your state’s department website and see how things stand where you live.

If you’re lucky, your state is one of the few that doesn’t allow insurers to use your credit score. This will prevent your bad borrower status from potentially costing you a lot of money due to your premiums going up. In one example on ConsumerReports.com, you can see more than $1,300 added to your monthly cost.

This instance is based on a single moving violation by a lone driver in Kansas. You can only imagine how much it would cost if you ran into multiple issues. You might even fail to qualify for insurance through certain strict insurers. It’s possible you’ll end up having to pay for a year upfront too.

The Problem With Credit Scores and Insurance

You might find your monthly costs getting higher all the time. A single moving violation could mean the difference in being able to pay your debts. This means you might be digging yourself further into debt even though the matter is out of your control.

All you can do is prepare for the worst. If your insurance premiums go up, you want the infraction to have minimal financial impact.

You can expect your premium to rise $100 or more per month from a single moving violation. Still, this is better than paying an extra $1,000 each month to stay on the road.

You can improve your credit rating and save money on car insurance. Since this is a cost factor, you can renegotiate on your monthly premiums when your FICO score is high. If the insurer refuses to negotiate — another insurance company may be eager to give you a better rate.

Does Your Insurance Affect Your Credit?

One saving grace is that this is a one-way relationship. Your FICO score impacts your car insurance costs, but your insurance won’t impact your credit score.

Since it’s not an inverse relationship, failing to pay your car insurance on time (or at all) will not hurt your credit. You won’t see a reduction in your FICO score — even if you end up in a financial disagreement with your insurer.

How to Save With a Better Credit Score

You can actually reduce your monthly payment amount by renegotiating your insurance terms. Wait until your FICO score goes up quite a bit before you do this. That way, you’ll be able to command a much better rate.

If you’ve had any increases to your auto insurance premiums, this might get reversed. Your decreased risk as a result of your better borrowing status could balance out the damage. Therefore, your monthly insurance costs could go down.

Conclusion

You want to better your credit rating and have access to quality financing opportunities. Whether you plan to start a small business or buy your dream home — your credit rating can make or break your dream.

With poor credit, not only will you get rejected for credit cards and loans more often, but your debts will cost you more. Even your car insurance — a recurring monthly expense — can go up as a result of poor credit.

In closing, it is clear that a strong FICO score comes with many rewards.

10 Little-Known Benefits of a Better Credit Score

By | Credit Scores

Better Credit Score Ovation

There are many reasons why you want to make sure your credit score is as high as possible; it’s not just to ensure you can qualify for a credit card or mortgage. Take a look below at 10 little-known benefits of better credit scores that you’ll want to learn right now.

1. Moving Violations Don’t Hurt Your Credit Score as Much

It’s unfortunate, but a moving violation can cause your insurance premiums to go up. The amount of the increase ranges depending on the situation. Your risk level is also taken into consideration. A big part of this is your auto insurance score, which is almost the same as your basic FICO score.

So, you’ll find yourself in a much better situation after a moving violation if you have good credit. In fact, the amount your premiums could go up may be as much as $1,000 a month after a single violation. Yet, if your credit-based insurance score is strong enough, you might only see a smaller increase of $100 to $150 per month.

2. You Can Negotiate With Insurance Providers

Companies that offer auto and homeowner insurance typically use the credit-based insurance score to determine your risk level. If your score is strong, it’s possible to negotiate a better insurance premium.

Additionally, if you can prove your risk level isn’t as high as it seems, you may be able to improve your credit score, and your current insurer may reduce your premiums. If you are rejected, it doesn’t hurt to check whether other insurance companies are willing to offer more competitive rates.

3. Renting a Home Gets Less Difficult

A typical tenant screening process involves a credit check. The landlord or property manager might not care if your credit isn’t good. However, there are many that will use this as a quick way to deny your approval. Someone renting out a place is likely to see your good credit score as proof of your financial stability. Therefore, if you have excellent credit, you’ll get priority dibs for the rental properties you can afford.

4. Reward Cards Become a Lot More Rewarding

You can qualify for any reward credit card when you have excellent credit. This gives you the opportunity to earn cashback rewards on all the shopping you do. The best reward cards sometimes pay as much as 3 to 5 percent back on all your purchases. In the end, you could save thousands of dollars every year by taking advantage of rewards programs.

5. Signup Bonuses Get Better

It’s important to inspect all terms before you apply for a credit card. Picking one just for the signup bonus isn’t a good idea. However, sometimes having excellent credit can gain you access to incredible signup rewards. There are travel reward credit cards that pay especially well. In fact, some signup bonuses can be worth $1,000 or more.



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6. Better Credit Score = Tier 1 Borrower

Many banks and lenders categorize borrowers by tier level. There are three tiers, which essentially put a borrower into one of three borrowing statuses. You’ll either be ranked as “Good”, “Better”, or “Best,” depending on your FICO score.

The cutoff depends on the company reviewing your file. Sometimes, you’ll need at least a 750 score, but on other occasions, you might require at least an 800 score. So, having as high of a credit rating as possible will ensure lenders consider you as a top tier borrower. This will result in optimal interest rates and a higher chance of approval.

7. Starting a Business Is Less of a Struggle

Most small businesses require a bit of startup capital. Without it, you have a much higher chance of experiencing failure. This is because there are many startup costs and scaling expenses you can face along the way.

Also, if your personal credit is excellent, your business creditworthiness will be sky high. This could mean that you can borrow as much as you need instead of getting capped at a few thousand dollars. If you like, all your monthly expenses and sudden purchases can go under one business card, as well.

8. Skipping the Paperwork

You are pre-approved for many credit opportunities. This ensures less paperwork when you do want a new credit card or loan of any sort. You also get to enjoy shorter wait times when you apply for new credit.

9. Qualifying for Unique Financing Options

There are certain types of financing that are not available to the average borrower. For example, you need to have excellent credit to qualify for a vacation home rental unless you make a a sizable down payment.

10. Real Estate Investments Become Trivial

Now, you have easy entry into the real estate market. You can qualify for mortgages with little down. Your interest rate is super low, so your holding costs are kept to a minimum. Sometimes, you can even get into a great deal without making a down-payment. Then, it’s just a matter of getting renovations done, which you might be able to get cheap financing on, as well.

Increasing your credit score will do you and your family good. The key is to not use your financial strength for impulsive spending or unnecessary expenses. Heed this advice, and you can enjoy the financial gain behind your excellent credit status.

Boo! Credit Scores Can Be Scary, Fear Not with These 5 Secrets

By | Credit Scores, Uncategorized, Your Credit

Credit score repair company

Credit Scores can seem scary when you think about how that three-digit number can affect so many financial decisions in your life. Frightening enough, that score can then scare away lenders when you’re applying for a loan or a mortgage. The ones not frightened away give you a horrifying interest rate!

Before you go and hide under your covers, here are 5 ways to calm your fears and improve your credit score.

1. Pay Off Your Balances, Especially Large Ones, Quickly

This pointer might sound obvious, but the sooner you can eliminate your balances, the healthier your credit score will be. If you make a hefty purchase with a credit card, try to pay it off right away, even if you must sell a favorite possession to obtain the funds. When you do so, you might find that your score goes up substantially. Plus, you’ll lower the interest rate you’re paying. At the very least, try to pay down your highest balances to the greatest extent that you can.

If you’ve routinely paid your credit card bills late, don’t fall into despair and assume that punctual payments won’t do you any good now. Instead, start paying those bills on time. Despite your history, your credit score will eventually reflect your newfound effort. What’s more, you’ll get into a good habit.

Remember as well that you can use an online service that will automatically pay your credit card debts each month. Such a tool will ensure that you won’t ever forget one of your bills.

2. Consider a Debt Consolidation Loan

You could speak to a financial expert about taking out a debt consolidation loan. This solution isn’t ideal for everyone, but perhaps you’d benefit from one.

First, you might find it easier to pay off your credit cards by combining the amounts of money you owe to various credit card companies into one sum. It might feel less painful to make a more substantial payment each month rather than a series of smaller payments. Plus, you won’t accidentally overlook a payment that you owe. Even more appealing, your overall interest rate will be lower. And taking out such a loan might soon result in a higher credit score.

3. Bring Your Credit Utilization Ratio Down

Your credit utilization ratio is the portion of your total credit limit that you spend every month. This ratio should be less than 30 percent. Of course, that number might sound low, especially if your limit is less than $1,000.

Keep calculating your credit utilization ratio each month. If you find that it exceeds 30 percent, try to pay more with cash or a debit card. You could also try to make fewer purchases, rely on coupons and discounts more often or start shopping around for less expensive products and services.

Another way to improve your credit utilization ratio is to ask for a higher line of credit. That way, you might not need to reduce your spending rate. If you have any credit cards that will grant such an increase without investigating your credit, consider making this request. Just be certain that none of those companies plan to do a hard credit check; having such an inquiry performed lowers your score a little.

4. Don’t Be Afraid to Use Your Credit Cards

Even though it’s important to keep your credit utilization ratio down, you should still be making regular purchases with all of your credit cards. Spending with your plastic and then making your payments in full is a highly effective way to raise your credit score. By contrast, when you completely avoid taking your credit cards out of your wallet or purse, you’re not doing anything positive for your credit report. And closing one or more of your credit cards could actually hurt your score.

On top of that, using your credit cards might allow you to collect exciting rewards. Possibilities include securing special deals on airfare and hotel stays as well as getting cash back when you buy certain items. Why pass up those goodies?

5. Seek Help from an Outstanding Credit Repair Service

Finally, a dependable credit repair service can help you boost your score and maintain that higher number over the long haul. It can keep careful track of your credit report and identify any mistakes or irregularities that might be unfairly damaging your credit.

The experts who work at such a company could also sit down with the credit card companies and other parties you owe money to. And they might be able to hammer out new agreements that are more lenient and favorable to you.

So there you have it: five financial tricks that can lead to real credit treats. These actions could provide you with the monetary rewards ― including better loan terms and insurance rates ― and the peace of mind that come with a healthy credit report.

 

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