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financial accounts Archives | Ovation Credit Repair Services

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”

3 Financial Accounts Students Should Have Before College

By | Credit Cards, Credit Repair

A recent study revealed that Millenials (today’s younger generation) are more responsible with credit than their older counterparts, but there are steps parents can take to ensure that future generations continue the trend. Here are three types of financial accounts every child should learn to manage before they leave for college.

Savings Accounts

From a very young age, even before kindergarten, children can understand the concept of saving money. Parents can help their children learn the value of saving, whether to have financial security, or to have enough to buy the items they want. Most banks offer free savings accounts for children of adult account holders and some banks even have special services geared toward helping kids learn to save early.

Checking Accounts

Once your children are in high school, it’s important to help them open a checking account. Learning to balance the statement and use a debit card are important skills that will stay with them throughout their lives. Many banks offer no fee student checking accounts to children of account holders attending school.

When establishing a checking account for your child, be sure you have your name on it as well. This way, instead of turning them loose on their own, you can help them build important skills, like understanding the connection between the account’s actual balance and the bank’s daily balance due to some items taking longer to clear. Teens need to understand early that it’s easy to overspend without good habits.

Credit Cards

Not only will you help your older teen or young adult college student establish credit that will provide them with spending power later, but by helping your child get a credit card, you can teach them additional elements of financial responsibility. Establishing habits like making payments on time, paying off the full balance each month, and using credit cards wisely are skills that can last a lifetime.  You may have to cosign your child’s application in order for him to get a credit card, but it’s important to let him take responsibility for the account, even if he makes mistakes. Taking actual responsibility for something is a more powerful learning tool than your words and warnings can provide.

If you have questions about which financial accounts your kids should have, our credit counselors are more than happy to help.

 

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