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Getting Your Credit Score Is Now Easier Than Ever

Man climbing range of credit scoresYour credit score is that three-digit number that rules your credit life. If you have a number above 660 you should be able to easily get a new credit card, a personal line of credit or an auto loan. You will be able to rent a house or an apartment and you will save money on your auto insurance premiums. On the other hand if you have a score of less than 500 you may have a very hard time getting any kind of credit.

A deep dark secret

Credit scores used to be a deep, dark secret known only to lenders. FICO, the company responsible for developing credit scoring, provided credit scores only to lenders and the three credit reporting bureaus. You could get your score by paying FICO or free from Experian, TransUnion or Equifax. However this would not be your FICO score but your Vantage score, which is based on a model developed by the credit bureaus.

Now easier than ever

Nearly half of us have checked our credit scores within the past year. According to a Bankrate Money Pulse survey another 14% have checked their scores within the past three years. Unfortunately not everyone has done this. Many Americans have never gotten their credit scores. In fact, a 2013 study from the American Bankers Association found that 56% of us did not know our credit scores.

The good news is that over the past few years credit scores have become easier to access than ever before. If you have a certain type of Discover card you’re probably getting your credit score every month. US Bank recently began providing its customers with their TransUnion credit scores. Bank of America is beginning to provide FICO scores to its consumer credit card customers and Chase is providing FICO scores at no cost to its Slate cardholders. Citi now provides free FICO scores monthly to those that have Citi-branded cards.

Even FICO is getting onboard

FICO recently said that it would provide versions of its score free to customers that are financially strapped. This will be done through certain nonprofit credit counseling agencies and government organizations that participate in the program`.

Websites that provide credit scores

In addition to the three credit reporting bureaus there are several websites that provide free credit scores. The most popular of these are, Credit Karma, Quizzle and Credit Sesame. If you sign up with one of these websites you’ll get a good idea of your score with each of the three credit bureaus. And if you combine the twice yearly free Equifax credit report from Quizzle with Credit Karma’s free credit reports. plus the free credit reports available at you should be able to spot any identity theft early on.

How lenders view youpoor credit score

While getting your credit score is a good idea it’s even more important to understand how lenders view it. They generally look at credit scores in ranges as follows:

• Excellent Credit: 781 – 850
• Good Credit: 661-780
• Fair Credit: 601-660
• Poor Credit: 501-600
• Bad Credit: below 500

How credit scores are calculated

FICO calculates credit scores using a proprietary algorithm. Vantage scores are based on an algorithm developed by TransUnion, Experian and Equifax. No one outside these four companies knows exactly how their credit scores are calculated but it’s known that FICO scores are based on five factors.

  • Credit history
  • Credit Utilization ratio
  • Length of credit history
  • New credit
  • Credit mix

Of these five the most important is credit history or how you have used credit in the past as it accounts for 35% of your score. Credit utilization is sometimes called your debt-to-credit ratio. It accounts for 30% of your score and is computed by dividing the amount of credit you’ve used by the total amount of credit you have available. Length of credit history is how long you’ve had credit. It makes up 15% of your score while new credit and credit mix each accounts for 10%. Your credit mix is the different type of credit you have – for example an auto loan, a mortgage and credit cards. New credit is sort of a misnomer because what it really means is the number of accounts you’ve opened recently. This can be important to potential lenders because it suggests you might be having financial problems and are desperately seeking new lines of credit.

To improve your score

If you have a low credit score and would like to improve it there are only several things you can do. If you’ve seen ads that scream, “Increase your credit score to 700 overnight” or “We’ll get those negative items off your credit report,” we have three words for you: Don’t believe them. There is absolutely no way to get a credit score increased overnight and while it’s possible to get negative items removed from a credit report it’s not something that any third-party can do.

There’s obviously nothing you can do about your credit history because it’s history. What’s done is done. You could improve your credit utilization ratio using one of two options. First, you could pay down your balances so that you would have a better debt-to-credit ratio or you might be able to get one or more of your credit limits increased – although this is generally easier said than done.

You could also improve your credit mix. For example, if you only have one credit card and an auto loan you could open a second card or take out a personal line of credit. The reason why this accounts for 15% of your credit score is that potential lenders like to see that you’ve successfully managed different kinds of credit. Of course, it will take time for this to improve your credit score because you’ll need to show you can handle that new credit card or personal line of credit sensibly.

If you have bad credit

If you have a credit score of 500 or below, you have some hard work ahead of you. The first thing you will need to do is get a free copy of your credit reports either from the three credit reporting bureaus or all at once on the site Go over your reports very carefully looking for the items that have sabotaged your credit score. These include late payments, missed payments, accounts that have gone to collection and defaults. You may be able to catch up on late payments and you could, of course, take care of missed payments. Just because you’ve defaulted on an account doesn’t mean you no longer owe the money. If you pay off the balance of a defaulted account it will still be listed as a default but as paid in full. The same thing is true of an account that has gone to collection. You will need to pay it off or negotiate a settlement with the debt collection agency to get square on it. As you can imagine all of this takes time as well as money. Beyond this you might get a secured credit card. Use it sensibly and this will be reported to the three credit bureaus, which will ultimately help improve your credit score.

When Going Into Credit Card Debt Can Be A Good Thing

What You Can Learn From Successful People About Debt FreedomIt’s obvious that there are people who have too much debt. For that matter, one recent study revealed that the average US household has more than $15,191 just in credit card debt not including other debts such as a mortgage, personal loan, business loan or medical debts. And college graduates are now carrying an average of $33,607 in student loan debt.

But did you know there are people who actually have too little debt?

Should you live cash only?

It might sound like a good idea for you to shred all of your credit cards and pay for everything with a debit card, check or with cash. But if you live like this, it can trip you up. The problem is that if you have no debt, you don’t have a credit score. And this can complicate your life considerably.

Credit scores

Your credit score – if you have one – is created from monthly reports that lenders send to the three credit reporting bureaus. It will reflect how many creditors you have, how much money you owe, how quickly you pay, the size of your lines of credit and any defaults. Plus, it will have information from the courts such as tax liens and bankruptcies.

Why credit scores are important

Credit scores are important because lenders depend on them to determine how likely you are to repay a loan. The credit score that is used most widely comes from the company FICO. It ranges from a low of 300 to a high of 850. If you have a score of 750 or above, you generally can get a new credit card or borrow money on the best possible terms. If you have a score of 700-plus, you will still be able to get a competitively priced loan. However, if your score is below 620, don’t bother even asking. And of course if you have no score at all, you don’t even exist – at least so far as lenders are concerned.

Understanding your credit score

While no one except FICO itself understands the algorithm used to create credit scores, it is known that they are made up of five components as follows: your credit history, credit utilization, length of credit, types of credit and recent applications for credit. Of these five, your credit history and credit utilization are the most important as together they make up 65% of your credit score. As you might guess your credit history is just that – how you have used credit in the past. Since it is, well, history there is not much you can do about it. But credit utilization, which makes up 30% of your credit score, is something that you do have some control over. The way it’s calculated is to take the amount of credit you’ve used and divide it by your total credit limits. As an example of this, if you have total credit limits of $10,000 and have used up $3000 of it, your credit utilization would be 30%. Most lenders would see that as good. However, if you had used up $5,000 of your available credit, your credit utilization would be 50%, which would be much too high. You can calculate your credit utilization yourself. If it turns out to be above 40%, there are two things you could do to get it down. First, you might be able to get more credit or second, you could pay down some of your debts.

Here, courtesy of National Debt Relief is a short video with more information about understanding credit scores.

Open some new types of credit

You could also influence your credit score in a positive way by opening some different types of credit. In addition to a credit card, you might open a personal line of credit or take out an auto loan. The fact is that potential lenders like to see that you’ve had some different types of credit and have used them sensibly. But do keep in mind that this accounts for only 10% of your credit score so don’t go hog wild in applying for new types of credit.

Your score could disappear

Let’s say that you had credit cards or loans in the past. In this case you might assume that you always have a credit score – despite the fact that you are currently operating debt free. Unfortunately, this is not so. If you had no activity on at least one line of credit in the past six months, your score could vanish. And this is according to FICO’s Anthony Sprauve.

The disadvantages of being a member of the un-scored

If you find that you don’t have a credit score, this might not bother you – especially if you voluntarily gave up your debt and credit cards. Unfortunately, your credit score will affect your life in a number of other ways. If you don’t have a score or a high enough score, you might not be able to get a discount on your homeowner or auto insurance. When you sign up for utilities such as gas or water, you might have to make a higher deposit. In the event you need to rent an apartment, your landlord will probably require a good score before giving you a lease. Credit scores are even often checked to get cell phone service or cable.

Marrying a credit score

Did you know that if you’re married you get a credit score by by sharing a debt with your spouse? As an example of this, you would get a credit score if you apply jointly for a credit card. In the event that one of you dies, shared credit cards are generally canceled. This means to keep them you would need to reapply. Otherwise, you would lose your credit score.

One isn’t the loneliest numberwoman thinking while holding a credit card

You might remember that song from the 1969 about one being the loneliest number. Well, in the case of credit cards one isn’t the loneliest number – it’s enough. No financial advisor or expert will suggest that you get a mortgage or take out a car loan just to make sure your credit score stays alive. All you really need is just one active credit card. For that matter, if you want to get a good credit score you don’t even need to have multiple credit sources. One card is enough assuming that you’ve had it for several years and use it once or twice a month – at least for small purchases such as gas or groceries – and then pay in full when the bill arrives.

Is it still good?

If you’ve been using cash, checks or a debit card to pay all of your expenses but have one credit card you’ve been keeping in a drawer for emergencies, you need to get it out and make sure it is still good. If you haven’t used the card for 12 to 18 months, the credit card issuer could lower your credit limit or even close your account. If you want to reactivate that card, it’s possible you would have to apply for it all over again.

For those with too much debt

Credit cards can be a trickier issue if you have too much debt. For example, should you cut them up or not? You would be at a danger point if your payments were more than 40% of your monthly income. Among adults aged 55 and up who carried debt in 2010, 8.5% hit that dangerous mark. People age 65 and up are carrying debt and in larger amounts than was true 15 years ago. And here’s an awful statistic – bankruptcy rates have risen to new heights especially among those 75 and up. If you’re trying to dig your way out of debt than cutting up cards might make sense. But make sure you keep one and use it at least once a month to keep your credit score alive.

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