We all know that you could be hurt by a bad credit score. That is why a lot of financial experts say that you also have to keep an eye out for your credit report. You want to always know the state of your credit ranking so you can see if you need to improve it or not.
When you have a good credit rating, that means you have been displaying good credit behavior. It tells others that you are creditworthy – which simply means your debt is at a reasonable level, you pay your dues on time and you know how to manage your debts. Having a high credit score will prompt lenders to give you a good interest rate on any loan that you want to borrow. That is because they are sure that you do not pose any risk – that you will not run away without paying your debts.
Minneapolis have better credit management skills
When it comes to having a good credit standing, Minneapolis ranks as the top city with the highest credit score average. According to the press release published on Experian.com, residents of this city averaged at 702. This score increase by two points since 2010. This is based on the VantageScore that ranges between 300 to 850. The city is followed by Boston with 694, San Francisco with 689, Seattle with 679 and New York with 678. Phoenix is noted to be the city with the highest score increase – jumping from 647 in 2010 to 654 in the latest study done by Experian.
It has to be noted that these cities that ranked the 5 highest credit score does not necessarily have the highest or lowest debt ranking. Of the top 5, Seattle has the highest debt average per consumer at $27,279. It is followed by San Francisco with $25,828, Minneapolis with $25,626, Boston with $25,413 and New York with $25,396.
The fact that Minneapolis does not have the lowest debt average per consumer (a spot held by Detroit with $23,604), and yet has the highest credit score average shows us a couple of truths about credit ratings.
- A low debt amount does not necessarily give you a high credit score. Detroit has a credit score average of 667 – a far cry from the 702 of Minneapolis. Although the latter has $2,000 more debt, it does not affect how the consumers in this city is properly managing their debts.
- A high debt amount is still a factor in pulling down your score – but credit behavior still weighs in the end. Seattle, although it has a high debt amount, still landed in the top 5 credit score average. But if you look at the complete top 20 list from Experian, the city with the highest debt, Dallas ($28,240) has a credit score of 648. This proves that a high debt amount may not entirely be the cause of your credit score downfall but it does have a strong pull.
- The debt amount is still outweighed by the credit behavior in helping you get a high score. Seattle is the perfect example for this. It is only $1,000 less than the highest average debt per consumer in Dallas but the credit score difference is more than 30 points.
Governing.com also provided data about the top states with the best credit score average. On top of the list is Minnesota, the state where Minneapolis belongs to. This state has an average of 718. It is followed by North Dakota with 715, South Dakota with 714, Vermont with 712 and New Hampshire with 711. It is interesting to note that the whole state where Minneapolis is included seems to be doing a good job when it comes to maintaining a good credit score.
How to maintain a good credit rating
But what does it take to get a good score? If you have a bad credit rating now, you do not have to fret because there are ways to fix your credit score.
Here are three important things to remember.
Borrow money wisely.
Being wise about credit goes beyond not borrowing when you need it. You have to learn how to borrow only what is necessary. A lot of people base the amount of loan that they will apply for on how much they are capable of paying. This is wrong. You only borrow what you need, nothing more. If you want to buy a home and you will qualify for a $1 million mortgage, do not take it. If a 3 bedroom apartment only costs $500,000, that is the amount that you should borrow. If your income takes a hit and your monthly cash inflow is lessened, your debt obligations will remain the same. Where will you get the amount that you need to pay off your debts?
Practice proper payment behavior.
Another important habit in credit management is your payment behavior. In the FICO Score, it is 35% of your overall score. When you pay your dues on time, this will reflect well in your score. It can keep your number up and that is always a good thing for lenders. When they see a lot of late payments, that will be a red signal for them that you do not possess the best payment behavior. You are a high risk borrower and that will prompt them to impose high interest rates on you.
Monitor your credit report.
It is not enough that you keep your score low. It is also a must that you make it a habit to monitor your credit report. You might be exhibiting good judgement and the right payment habits but that does not mean your score is already in good condition. One incident of identity theft without you knowing it can make your score plummet. It will also leave you with a huge debt to pay off. This is why you must review your credit report as often as you can.
Here is a video from Bank of America that will help you understand what a good credit score really is.
New way to compute your credit ranking
The way that credit scores are being computed is always being improved. Recently, FICO, the leading provider of consumer credit scores have announced that they refined how medical debts and collections will be computed and reflected in the credit rating of consumers.
The news found on FICO.com revealed the changes in the FICO Score 9. They are as follows:
- Better way of assessing the collection information of every consumer and those with a thin credit history.
- Bypassing of any paid collection accounts.
- Differentiating of medical and non-medical collection accounts.
These changes hope to lessen the impact of medical collections on the credit score of consumers. This change is meant to make the computation more precise for lenders. After all, medical debt is not something that can be compared directly with mortgage loans, credit card debt and student loans. It is a debt that you oftentimes do not have a choice in – because it literally means choosing between life and death.
It is also a great improvement, the way this new formula allows consumers with a thin credit history to be judged more accurately about their payment behavior. It will give the new credit holders a better chance at getting a good deal on their first few loans.