Understanding Your Credit Score
And Improving Your Rating
Although many of us do not like to think about, several credit reporting companies are constantly tracking how we manage and spend our money. They compile this information into a credit report that is used to determine how responsible we are, and how likely we are to repay a debt. This information is frequently converted to a rating, or score, that is used by lenders to determine if they want to loan us money to buy a car or a home. It is used by credit card companies to decide how large a limit we should have and how high our interest rate will be. It is also used by landlords at apartment complexes to determine whether or not they want to rent us an apartment. There are even some employers who check these reports before hiring new employees, especially if you will be handling money. Consequently, it is very important that we handle our finances responsibly so that we have the highest rating, or credit score, possible. It is also important that we check our personal reports at least once or twice a year to be certain that they are accurate. It is so essential that all of us learn how to maintain a strong financial picture that our local Credit Counseling Service sends a representative each spring to the high school where I work, in order to teach our high school seniors about this information. Regardless of our age, however, this is important knowledge for all of us to have.
Who are the Credit Reporting Agencies?
There are three major credit reporting agencies in the United States. Here are their names and contact information:
P.O. Box 740241
Atlanta, GA 30384
P.O. Box 505
Woodlyn, PA 19094
2220 S. Ritchey Ave.
Santa Ana, CA 92705
Experian has offices in many locations, so you may want to consult information or go on the internet to find the contact information for the office closest to you. The address for Experian listed above is simply the information for the office in the state and county where I live.
You may also want to understand how to improve and repair your credit and help your financial picture. If so, here is a link to some excellent Amazon books on the topic:
How to Get a Free Credit Report
You may have heard different advertisements for free credit reports on the radio or television. Unfortunately, they are often simply offering you one free report if you sign up for their monthly service. You do not need to sign up with any business in order to obtain a free report! Instead, you can obtain one online from: annualcreditreport.com. Or, if you do not have access to the internet, you can call each of the reporting agencies at the phone numbers listed above. They are all required to provide you with a free report once a year. Since there are three reporting agencies, you can contact a different one every four months. This is an excellent way to see what credit and payment information is being reported about you. It will help you catch and correct errors, as well as any attempts to steal your identity.
How Does a Credit Reporting Agency Decide My Score?
According to our local Consumer Counseling Service, there are five factors that go into determining your credit score. The largest portion of the score, 35%, is dependent on your payment history. This is the record of how responsible you have been about paying all your expenses, including rent payments, utilities, car payments, credit card bills, etc. The next factor, 30% of your score, is the amount of outstanding debt you have. In particular, they consider how much you owe compared to the amount of your available credit. So, if you have your credit cards maxed out, your score will be lower. The remaining factors that determine your score are the types of credit you have, how old it is, and the length of your credit history. That is why it is beneficial for young people to get a credit card and occasionally use it, so they can begin to build up their financial history before they decide to purchase their first car or home. However, it is important that they are cautious, and use their card wisely.
How Can You Build Your Credit Score?
The higher your score, the lower the interest rate will be when you decide to make your first major purchases. Therefore, it is well worth the effort to start at a young age to try to get the highest score possible, and then work to maintain that high credit score. Our local Consumer Credit Reporting Agency recommends that young people apply for a credit card while they are in college. If you do not have enough earned income to make the payments on your own, your parents will have to co-sign for you. In this way, a college student will begin to establish credit, and by the time they are out of college they will have a long financial history. However, it is very important that you are very careful about how you use your card while you are in college. If you keep maxing out your card, or going over the limit, having a card in college will hurt you instead of help you.
Finally, it is very important that you pay all your bills on time. Many young people are careless about bill paying. If you consistently make your rent, utility and car payments late, it will have a negative effect on your credit score. On the other hand, if you make all your payments a few days in advance, it will help you. With the convenience of online banking, it is now much easier for people of all ages to set up their payments so they are sent out each month at a regularly scheduled time. If you have a payment that is the same each month, you don't even have to think about it again. If it changes each month, for example your electric bill, you can just go into your account and edit the amount when the bill comes. This is so much easier than remembering to write and mail a check.
Remember that the way you handle your money is constantly being recorded by reporting agencies. There is virtually no way to live in modern America and avoid their scrutiny. As a result, it is essential that we all handle our finances responsibly, as it will make things easier in so many aspects of our lives.
If you are interested in learning more about handling your family's finances, you may also want to read these articles:
An Excellent Book to Help You With Financial Planning
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