Here’s What You Need to Know About Credit Utilization

Credit scoring is a mystery to many people, and for good reason. It’s not easy to understand the grading process or which factors matter most.

Credit scoring is a mystery to many people, and for good reason. It’s not easy to understand the grading process or which factors matter most.

While every lender has its own method for deciding which customers are worthy of financial trust, more than 90% of top U.S. businesses rely on the FICO score when reviewing credit and loan applications, according to the company. Of course, you have more than one FICO score, so you might be feeling confused all over again, but here’s the good news: When it comes to credit health, it’s best to narrow your focus to five main factors:

  • Credit length
  • Payment history
  • Account diversity
  • Inquiries
  • Credit utilization

Why Is Credit Utilization So Important?

Every factor of credit scoring is crucial, but credit utilization is responsible for 30% of your overall score, second only to your payment history’s weight of 35%. Credit utilization measures your revolving balances against your total credit limit. Lenders and credit card issuers rely on credit utilization to predict risk and future behavior. In general, the higher your utilization ratio, the greater your risk of defaulting on your balances. Risky behavior isn’t rewarded in the world of credit scoring, and you may see a decrease in your scores as your utilization ratio goes up.

To understand credit utilization, you first need to understand your line-item and aggregate calculations.

Line-Item Utilization

Line-item utilization measures your individual credit card balances against your individual limits. For example, suppose you have three credit cards, each with a $10,000 limit. Based on your current balances, your line-item utilizations break down like this:

Card A: Balance of $4,500 / Credit limit of $10,000 = 0.45 × 100 = 45% utilization

Card B: Balance of $2,000 / Credit limit of $10,000 = 0.20 × 100 = 20% utilization

Card C: Balance of $3,300 / Credit limit of $10,000 = 0.33 × 100 = 33% utilization

Aggregate Utilization

The average of your credit card utilizations is called aggregate utilization. Calculate yours by combining your current balances and dividing them by your total credit limit. In the example above, your total balance is $9,800 and your total limit is $30,000; therefore, your aggregate credit utilization is $9,800 / $30,000 = 0.32 × 100 = 32.6%

Which One Matters?

Line-item and aggregate utilization are both important factors in overall credit health, and FICO recommends keeping yours as low as possible.

How to Benefit from Credit Utilization

Credit utilization has an undeniable affect on your credit score, and there are ways to harness its influence in your favor. (Not sure where your credit stands? You can view two of your scores for free on Credit.com.)

Keep Your Balances Low

If you struggle to curb spending or rely on credit cards to make ends meet, overhauling your budget is the first step. A few monthly changes could help you avoid overwhelming debt and related credit damage.

Check Your Credit Reports for Accuracy

Your credit reports tell the larger story of your financial history and responsibility, and accuracy is key. For example, suppose Card A’s $10,000 credit limit is mistakenly listed as $6,500 on your credit reports. While it may seem like a small issue, an incorrect credit limit can alter your utilization ratio and damage your credit score in the process. In this case, your line-item utilization would increase from 45% to 69.2%, and your aggregate utilization would increase from 32.6% to 37%. You can’t afford to ignore the details. Order free copies of your credit reports to ensure that they accurately reflect your credit card balances and limits.

Request a Limit Increase

If you’re working on debt reduction but need a quick fix, consider asking your lenders for limit increases on each of your cards. For example, increasing Card B’s limit to $15,000 would lower your line-item utilization from 20% to 13.3%, and your aggregate ratio from 32.6% to 28%. Requesting a limit increase could place a hard inquiry on your credit file, costing your score a few points, but the benefits of lower credit utilization are usually worth the temporary ding.

Change Your Bills’ Due Dates

It’s difficult to benefit from credit utilization if you are constantly battling the clock. If your credit card issuers report customer balances to the credit bureaus before you pay your bill, it may seem like your utilization ratio is constantly high. The fix? Contact your issuers and ask them when they typically report to the credit bureaus, and then move your bill’s due date to the week before. This strategy allows you to take full advantage of low credit utilization by giving you time to pay your balances before the reporting date.

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The post Here’s What You Need to Know About Credit Utilization appeared first on Credit.com.

Here’s How to Prepare Your Credit for a Job Search

Don't let your credit hold you back from your dream job.

Conducting a job search after graduating from college can seem like a monumental task, one filled with challenges and uncertainties. But here’s one thing recent grads shouldn’t be uncertain about when embarking on the journey to secure a job — what’s on their credit report.

Just as hours and days are devoted to creating a professional resume and poring over every last word on a LinkedIn profile, your credit report also needs to be reviewed and, if necessary, improved. The importance of one’s credit history during a job search will of course vary by profession, but there are employers who will look at your credit report as part of their application process. And if you’re applying for a job that requires you to handle cash or balance books, a blemish could hurt your chances of securing the position.

Why Does an Employer Want to See my Credit? 

“Employers will look at credit history as a measure of responsibility,” said Deidre Davis, vice president of marketing and communications for the university-based MSU Federal Credit Union. “They’re looking to see if that potential employee has successfully managed their financial obligations, because that will tell them how someone might manage overall workload and deadlines.”

According to credit-industry experts, it’s most often within the banking and financial services industry that a credit report review is part of the application process, as well as for some government jobs that require security clearance, law enforcement officers and those seeking executive-level positions. It’s important to note, however, there are about a dozen states where local laws either prohibit or severely limit the use of consumer credit reports as part of an application, according to the site Employment Screening Resources.

Plus, employers are not allowed to check your credit report without your consent, which you must provide in writing. And they won’t have access to your actual credit score, explained Davis. They’ll be looking at the credit report, which is slightly different. It shows such things as whether you’ve missed payments and are delinquent on accounts, and whether you carry large balances.

Having a clean credit report isn’t just important to a job search, post-college. Prospective landlords, insurers, cell phone companies, utility providers and more will check your credit when deciding whether to do business with you and/or what to charge. Of course, you’ll also need good credit to get an affordable loan.

With that in mind, here’s some advice from credit experts on getting your credit profile ready for the interview process.

1. Know What’s on Your Credit Report

The first step is to pull your credit report and conduct a thorough review of everything on it. Under federal law, you’re entitled to one free credit report every 12 months from each consumer credit reporting agency. You can pull your free annual credit reports from AnnualCreditReport.com. (And, if you’re looking for your digits, you can view two of your credit scores for free on Credit.com.)

“Know your starting point,” said Kevin Gallegos, vice president of Phoenix operations for Freedom Financial Network. “Many young adults already have credit profiles and don’t realize it. Start by finding out if you do.”

Once you’ve reviewed your report(s), correct any inaccuracies and dispute any erroneous items. (You can learn more about disputing errors on your credit report here.) Under the terms of the Fair Credit Reporting Act, credit bureaus must investigate disputed items and remove them from the report if they cannot be verified, Gallegos explained.

2. Seek Guidance From a Finance Professional

If the credit report turns up negative factors, or you simply don’t have a firm understanding of the key aspects of a credit profile, consider obtaining the advice of a professional.

“Get some tips to improve things going forward,” said Davis of MSU Federal Credit Union. “Talk to someone who can tell you, ‘For the next six months these are the behaviors that will improve your credit score.’ Sometimes people need some basic advice and guidance. That’s where going into a local financial institution can help. You can say to them, ‘Here is my credit report, how can I make it better?’ ”

According to the site LendEDU, many college students know very little about building, maintaining or repairing consumer credit. In 2016, the site surveyed 668 current college students at both two-year and four-year public and private institutions, and found that 59.3% of students could not define a credit score. In addition, 45.5% were unable to identify any of the factors used to determine a credit score, and 42.4% were unable to identify at least one way to improve a credit score.

Building good credit is important, so don’t be afraid to seek assistance.

3. Improve Your Credit

One of the most critical things you can do to improve your credit report moving forward is pay bills on time, said Gallegos.

“On-time payments are the most important factor in developing good credit, accounting for 35% of one’s credit score,” he said.

In addition, maintaining a low balance, or using only about at least 30% and ideally 10% of your available credit, will improve your score. You should also aim to pay your bills in full each month, if possible. Likewise, paying student loans on time, which are considered installment loans, can help improve your credit score. (You can find more ways to improve your credit here.)

What If You Haven’t Established Credit?

Some college graduates may not have an extensive credit history to show a prospective employer. If this is the case, there are a few ways to help establish a solid record fairly quickly.

One approach is to be added as an authorized user on a parent’s credit card, ideally a card the parent has had for a long time and kept in good standing. By being added to such a card, the payment history on the account will become part of your credit report as well.

Be aware not all credit card companies report authorized users’ names to credit bureaus because there’s a fee involved in doing so, says Davis. That means being added to the card won’t accomplish your goal of establishing a solid credit history. Always find out first if the card reports authorized users to credit bureaus.

Another approach is to open a secured credit card in your name. Secured credit cards require a cash deposit as collateral, which then becomes the line of credit. The key when opening the card, or any card for that matter, is being responsible, said Davis.

“Only use the card for small dollar purchases that can be paid when the bill comes in so that you’re not getting into debt but are showing responsible use,” she said. “Buy a pizza with the card, and pay it off. Buy a pair of tennis shoes, and pay it off. Don’t go open 15 cards. Open one and use it responsibly.”

Trying to get a full-time gig now that college has ended? We’ve got your covered. Here’s a full 50 things recent graduates can do to score their first job

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5 Basic Credit Lessons to Teach Your Kids

Your parents may have prepared you as best they could for the financial realities of adulthood, or they could have left you to figure it all out for yourself. But if you were taught the basics of finance and credit before you left the nest, you may have encountered less of a learning curve than your clueless counterparts. No matter your level of understanding, you likely have to do some learning yourself.

But now, if you’re the parent, one of your priorities is to prepare your kids for adulthood. Just as you would teach your children to dress themselves, ride a bike or do their laundry, you may want to impart lessons about credit to them to help them become successful and financially independent.

Here are five credit lessons you may wish to impart.

1. It’s Important to Regularly Check Your Credit Reports & Credit Scores

Credit reports and credit scores may seem like abstract concepts to teach your children. But you can use simple metaphors. School-age children can understand the concepts of grades and report cards, and these concepts apply to credit. The work you put into your credit is reflected in your credit report and credit score, which “grade” your performance. These grades can then be used to help you get “rewarded,” like by getting the best rate on a credit card or a loan, like for a car or home. (You can check out your free credit report summary on Credit.com, which includes grades on how you’re doing in the five key areas that make up your scores.) This brings us to our next lesson …

2. Credit Affects Their Life

Once your child understands the concept of a credit report and credit score, you can demonstrate how credit has affected your lifestyle. Many of your possessions — your home, car or credit card, for instance — were obtained using credit, and are examples of the power of credit. Of course, credit is not just a way to get “things.” It’s a tool that can help provide shelter, comfort and freedom.

3. There Are 5 Main Influencers of Credit

As your kids get older and have a firmer grasp on these concepts, they may be able to better understand how they can make credit work for them. You can show them credit is determined by five main factors:

  • Payment history
  • Debt usage
  • Age of accounts
  • Types of accounts
  • Credit inquires

If you own credit cards, have loans and monitor your credit report, you have teachable moments built into your financial routine. When your children are old enough, you can involve them as you pay a bill or check your credit report, explaining the process as you go.

4. Mistakes Can Cost You

Mistakes can be valuable life lessons for young people. But when it comes to credit, mistakes can be costly and their effects can be long-lasting. One late payment can cause your credit score to drop dramatically. And negative items such as accounts in collections and judgments can stay on your report for at least seven years. To a young person, seven years can be a long time to have difficulty obtaining loans or credit cards. You can also show them how errors on your credit report can be fixed by using this guide.

5. Credit Cards Are Merely Tools

Credit cards are not a magic wand for reckless spending, but they are also not inherently risky items to be avoided. They are tools. They can be invaluable to build credit and financial independence, but they can also be damaging if wielded incorrectly.

It’s no secret that young people can have trouble with impulse control. But you may want to impart that credit cards can be used responsibly or irresponsibly. The results will depend on the user.

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7 Simple Hacks for Building Better Credit

Believe it or not, there are a few things you can do to quickly boost your credit.

Sure, credit-scoring models are complicated (all that algorithm-ing and such). But, when you get right down to it, the secret sauce to building good credit is actually pretty straightforward: Take a whole bunch of on-time loan payments, keep a pinch of debt, stir in some new accounts, and let the thing bake. Seriously — building and rebuilding credit takes some time.

Still, there are a few seriously simple ways to hack your credit. And while they’re no substitute for the good old traditional recipe, these maneuvers could give a so-so credit score a quick boost. (Not sure if you need one? You can see where you stand by viewing two of your free credit scores, updated every 14 days, on Credit.com.)

Here are a few ways to hack your credit score.

1. Pay Off Big Credit Card Balances

Because if you’ve got ’em, there’s a good chance they’re messing with your credit utilization ratio. That’s how much debt you’re carrying versus your total credit. It’s recommended you keep that ratio below at least 30%, and ideally 10%, of your limits. So paying off purchases putting you over that threshold — in total and on individual cards — can help.

2. Ask for a Credit Limit Increase

If you can’t address those balances right away or you’re saddled with a seriously low credit limit, you can ask your issuer to up your limit. Some notes before you do: They’ll likely pull your credit to see if you can handle the increase. If your credit is bad, you might be met with a resounding “no.” Whether approved or denied, that credit pull will leave a hard inquiry, which will cost your score a few points. That ding is worthwhile if you get what you’re asking for but less so if you don’t. You can find more on asking for a higher credit limit here.

3. Become an Authorized User

Consider this a credit card with training wheels. Authorized users, who are added to an existing credit cardholder’s account, get credit for using that card, even though they’re not responsible for making payments. In other words: You can capitalize on a loved one’s good credit and, if things take a turn for the worse, you can ask to be removed from the account and have it scrubbed from your credit report.

4. Look for Errors

The hack here, sadly, is that you might have a mistake needlessly bringing down your score. According to the Federal Trade Commission, one in five people do. If you’re among them, be sure to dispute the misinformation with the credit bureau in question (here’s how). Your credit score will likely thank you for it. (FYI: You can do a complete credit check by pulling your free annual credit report from each of the major consumer credit reporting agencies at AnnualCreditReport.com.)

5. Open a New Account

OK, bear with us here for a second, because we’re not suggesting you take on financing you can’t afford. That’s a terrible idea. We are trying to draw attention to a very important nuance of credit scores: They reward you for responsibly managing different types of credit. So, if all you’ve got is a student loan, getting a credit card could ultimately improve your score. And if all you’ve got is a credit card, taking out an installment loan, like an auto loan or mortgage, could do the same — though in that scenario, you’d definitely be upping your debt load, so it’s best to only add that financing as you actually need (and can afford) it.

6. Group Your Credit Applications

Most credit scoring models group credit inquiries for like financing as one hit to allow you to comparison shop. (It’s technically called de-duplication.) So, if it is time to add a mortgage or auto loan, make sure you keep all applications within a 30- to 45-day window. Credit cards are a different story — each one of those can generally be held against you, though VantageScore does group all inquiries made in a 14-day window.

7. Keep Old Credit Cards Open

It can be tempting to formally close those old credit cards that got you into trouble in the first place. But don’t make that call quite so fast. Closing a credit card can hurt your credit utilization rate and, you guessed it, your credit score. Leaving that card open, on the other hand, could help your score out, especially if you’ve sworn off using its limit. There may be times when closing a credit card is, in fact, the right call, but carefully consider your options (can you simply put the thing on ice?) before officially cutting ties.

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Will I Lose My Credit History If I Change My Name?

Here's how to ensure your name change goes as smoothly as possible.

Thousands of people change their names each year, often as a result of marriage or divorce, and less frequently, just for fun. In fact, one man, armed with $50 and a written deed poll application, secured the moniker Bacon Double Cheeseburger in the United Kingdom last year.

Although Mr. Cheeseburger may be perfectly satisfied with his colorful designation, he and others can experience some bumps after a name change. And while you won’t “lose” your credit history if you change your name due to marriage, divorce or even just for fun, there can sometimes be confusion about your identity if your information isn’t being accurately reported.

In general, your new name is added to your credit reports after you notify your mortgage lender, credit card issuers and other businesses of the change. They report the change, be it a first or surname change, to the three main credit bureaus and your new name replaces the old, which then remains on your credit history similar to old addresses and employers.

How to Smooth Your Name Change Process

Keep in mind that changing your name isn’t an automatic process. It requires lots of paperwork and contacting the necessary businesses to ensure a successful shift. Personal participation is key.

The best way to ensure that your name change is reflected on your credit report is to contact government agencies and credit issuers who provide personal data and account information to the credit bureaus. These include:

  • The Social Security Administration: Applying for a new Social Security card is a good place to begin your name change because it can be used to help verify your identity as you move forward. While your Social Security number (SSN) won’t change, your name will be updated.
  • The Department of Motor Vehicles (DMV): If your name change is the result of marriage or divorce, you may need an original or certified decree before a change is allowed (rules vary by state). Visit the DMV to update your license.
  • Bank & Credit Accounts: Contact your lenders and credit card issuers to order new checks, debit and credit cards, and be sure any business accounts are updated as well.
  • Your Employer: In addition to updating their own records, your employer needs your new name in order to pay Social Security, unemployment and other taxes on your behalf.
  • Medical Providers: Medical bills rarely appear on your credit report unless you fail to pay it, but it’s a good idea to provide your doctors and dentists with your new name.
  • Insurance Companies: Insurance coverage is essential to protecting your home, car, business and other valuables. Make sure your providers have current information.

When you’re finished, it’s also a good idea to contact each of the three credit reporting agencies (Experian, TransUnion and Equifax) to alert them of your name change and ensure it is accurately reflected.

Credit reporting isn’t a perfect system, and while changing your name shouldn’t erase or negatively impact your credit history, it’s a good idea to check your reports and scores in the months that follow. Visit AnnualCreditReport.com to order free copies of your TransUnion, Experian and Equifax reports. You can also view two of your credit scores for free, updated every 14 days, on Credit.com.

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4 Mistakes People Make With Their Credit During the Winter

Here are some common credit mistakes people make during the winter.

No matter what seasonal holidays your family celebrates, we’re definitely in the festive season right now — it tends to start with Halloween and ends on January 1.

Over the last month or so, we’ve filled our pantries for Thanksgiving, hit the stores for Black Friday, and stocked up on gifts and food for Christmas or other family celebrations. (Not to mention all the pageants, concerts, get-togethers and parties that come with the season.)

During this time of year, many people get focused on gift giving and accidentally make these four credit mistakes, As we head into the home stretch, here are some not-so-smart spending behaviors to flag.

1. Overspending

‘Tis the season for giving, but some people give so much that they hurt themselves financially by spending more on their credit cards than they can pay back. That $25 gift for a friend that you thought you were getting a good deal on can suddenly cost $40 (or more!) once interest and fees are added onto an unpaid credit card. So be sure in these last few shopping days to stick to your budget. It’s okay to put things on your credit card … as long as you can pay off your credit card right away. (You can see how your holiday shopping has affected your credit by viewing two of your credit scores, updated every 14 days, for free on Credit.com.)

2. Not Watching for Fraud

There’s a lot of shopping this time of year – it starts with Halloween candy and costumes for the kids and ends with champagne for a New Years Eve celebration (and maybe a gym membership to go along with your 2017 resolution). Along the way, you’ve probably had your credit card in hand fairly often – shopping for a turkey for Thanksgiving or angling for a great deal on Black Friday or Boxing Day. With all that extra credit card use, it’s important to stay vigilant and monitor your credit card statements carefully for fraudulent charges. Also, be sure to report them to your issuer immediately to have the charges reversed and your card replaced.

3. Lending a Credit Card

If your spouse is running out to pick up some last-minute fixings for the annual family get-together, or maybe some stocking stuffers for the kids, it might be tempting to hand off your credit card to them if they don’t have their own. However, this common mistake can prove costly for so many people every year, because while your family member might be very trustworthy, a simple mistake of leaving behind a credit card they’re not used to carrying could lead to fraud. (Something else that’s important to note: Lending your credit card to someone else, though it isn’t illegal, could put you in violation of your card agreement and make it harder to reverse the charges made while the plastic was out of your hands. You can learn more about how this works here.)

4. Putting Your Credit Review on Hold

I always recommend reviewing your credit report at least twice a year — or even quarterly. But this season can be so busy that people will often put their good habits and responsibilities on hold so they can focus on the turkey, decorations, costumes and shopping that needs to be done. However, skipping a credit report check just once a year (especially during the holidays) can set you back dramatically and make it that much harder to check and clean up your report in the spring. (Remember, you can pull your credit reports for free each year at AnnualCreditReport.com.)

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5 Possible Benefits of Changing Your Bills’ Due Dates

benefits-of-changing-your-bills'-due-dates

Paying bills is a tedious necessity, and for many, it’s also an ongoing source of stress. According to the 8th annual Billing Household Study from Fiserv, a financial services provider, 35% of consumers paid at least one bill late in the past 12 months, and 65% also paid a late fee.

So, why are these people struggling to meet their billing deadlines? Common reasons include forgetfulness, lack of funds and personal life obligations. If any of these reasons sound familiar, it might be a good idea to consider how your billing due dates factor into the equation. These are five ways requesting a timeline shift from your providers could could really benefit you.

1. Saving Money

Late fees are the immediate consequence of missed payments, but the financial woes don’t stop there. Frequent missteps can lead to increased interest rates on your revolving accounts (like credit cards), driving up your balances and making it more difficult to get out of debt. Paying your bills on time can help you avoid these issues and ultimately save money.

2. Promoting Credit Health

Payment history is the greatest factor considered in credit scoring, and you can’t afford to ignore the effects of late payments. According to Equifax — one of the three major credit bureaus in the U.S. — even a 30-day late payment can damage your credit significantly. In contrast, paying your bills on time can help give you a strong payment history and benefit your credit. Not only that, but keeping your debt level low in relation to your overall credit limit (also known as credit utilization) can benefit your credit scores. Experts recommend keeping your debt below at least 30% (ideally 10%) of your total available credit, which can be hard to do if you’re tacking on late fees. (You can see how your credit is currently fairing by viewing two of your credit scores for free, updated every 14 days, on Credit.com.)

3. Removing Memory from the Equation

According to a 2013 Citigroup survey, 61% of people miss bill payments due to forgetfulness. Coordinating your payments to fall on the same days each month — the 1st and 15th for example — gives you a better chance of remembering your financial commitments. If you still fear memory troubles, it might be a good idea to sign up for bill auto-pay to remove human error from the equation. Most credit and service providers offer this option for free, but you’ll want to check with your individual provider to be sure.

4. Streamlining the Payment Process

Fiserv’s survey found that consumers pay bills using a variety of methods and doing so could contribute to making it hard to keep track of all your bills and their due dates. According to Fiserv:

  • Consumers used six different payment methods per month in 2015, up from 2.9 methods in 2014.
  • A reported 21 million households changed their bill payment method on a monthly basis in 2015, a 40% increase from the previous year.
  • Of those who participated in the study, 21% still receive all paper bills, while 54% use a mixture of paper and online/mobile options — 25% consider themselves paperless consumers.

By changing your billing due dates, you may also feel inspired to commit to a consistent method of payment. Doing so could help you track spending and streamline your monthly finances, helping you keep those bills paid on time (and those credit scores in great shape).

5. Preserving Credit Repair

This may not apply to everyone, but to those it does, it’s a big one. Recovering from past credit damage is an extreme challenge, but that’s especially true if you don’t change the behaviors that contributed to the downfall of your scores. In fact, preserving your scores could be more difficult as it improves. Typically, a single late payment made a few years ago won’t still be hurting your credit today, as long as you rebounded and have made consistently timely payments. Of course, on the other hand, a recent late payment could drop your scores.

How to Change Due Dates

Changing your billing due dates can usually be done with a simple request, which can be done online, on the phone phone or in person. Although credit and service providers aren’t legally required to make this type of shift, explaining your reasons and commitment to timely payments could work in your favor.

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Can I Fix My Credit in a Week?

fix-my-credit-in-a-week

If you’re getting ready to apply for a car loan, mortgage or credit card, you may have heard it’s a good idea to check your credit before doing so. But, waiting until the last minute to check your credit before applying may have you surprised — if you find you have low credit scores for any number of reasons, you may be wondering just how quickly you can fix your credit.

“Unfortunately, there are no quick fixes for credit because it took time for this problem to arise and it generally takes much more than a week to resolve it,” John Heath, a credit expert and consumer attorney for Lexington Law, a Credit.com affiliate, said in an email.

Timing Is Everything

Credit scores are based on information in your credit files, which includes new data about how you handle your accounts reported by your creditors every month, according to Jeff Richardson, a spokesperson for VantageScore Solutions.

This monthly reporting date differs from lender to lender and the monthly date your credit scores update also differs depending on the reporting bureau, which is one of many reasons the cycle for fixing your credit may take more than 30 days, Richardson said.

Another example of timing limitations arises when you attempt to fix your credit by disputing errors on your credit reports, according to Heath. These disputes may include a current account, collection, bankruptcy, public record, tax lien or late payment that can’t be substantiated, isn’t yours, is inaccurately reported or is outdated.

“One of the major rules of the Fair Credit Reporting Act grants the credit reporting agencies 30 days to review your challenges to items on the credit report,” Heath said.

According to a 2012 VantageScore report, showing the impact of different positive and negative credit behaviors, you can typically improve your credit scores by 10 to 15 points within a few months with simple credit management techniques such as paying bills on time and paying down debt. For larger score improvements, it can take even longer depending on your specific credit report and account history.

Credit Fixes Accomplished in 30 Days

In general, the negative score impact of running up the balances on your credit cards can usually be corrected by a payoff the next month, according to Richardson.

“Pay down the balance all the way to zero, or at least under 30% of your total available credit, and you may see a credit score bump back up the next month, so long as there are no other negative credit events on your report,” he said.

Again, depending on timing, there might be one way you might improve your credit score in one week, according to Richardson.

“A score increase or decrease will depend upon when the lenders update your file,” Richardson said. “If you can find out when, say, a credit card issuer is reporting to the credit bureaus and reduce your balance significantly beforehand it is possible to see a score increase in a short time period.”

He favors taking a longer view of your credit health and improving your credit before you need to apply for any new credit, if possible.

Heath said you could spend one week reviewing your credit reports thoroughly making sure you recognize all the listings on the report and creating a budget that assures timely payments. Both of these actions, easily completed in one week, go a long way toward improving your credit in the long run.

No matter what steps you take to improve your credit scores — whether it’s to repair errors you discover or simply improve your habits — it’s important to note that these are things you can do on your own. There are also professional credit repair experts who are available to help you, but opting to turn to one for help is not essential.

If you are unsure where your credit currently stands, you can view two of your credit scores for free, updated ever 14 days, on Credit.com.

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How Long Will It Take To Achieve Better Credit?

credit-improvements

Lenders use your credit report and credit score to help them determine how much to lend you, and at what interest rate. That credit report is derived from your credit history — an algorithm of your past credit usage (including how much credit you have, how well you pay it off, and what mix of credit you have access to, among other things).

Since your credit report and credit score are ultimately derived from your credit history, then the question you should be asking is, “How long will it take to achieve better credit?” Or put another way, “How much new history do I need to build in order to achieve a healthier credit report, which will be reflected in my credit score?”

The answer is not a simple one, although I will attempt to give you some guidelines.

The speed of your credit improvement depends on the information that’s in your credit report. For example:

  • If there are several pieces of incorrect information, then you can dispute these, have them removed, and you may see a credit score increase in as little as a month or two. (You can go here to learn about composing a letter of dispute to the credit reporting agencies.)
  • If you have a long history of late payments and a bankruptcy, you may find that it takes longer to make a dramatic improvement on your credit score.

Ultimately, credit scores rise when you do the following:

  1. Get your credit reports and ensure that the information is as accurate as possible. (You can pull your credit reports for free each year on AnnualCreditReport.com and view two of your free credit scores, updated every 14 days, on Credit.com.)
  2. Maintain good credit habits by paying debt off regularly and on time, and keeping a good mix of credit.
  3. Waiting for some of your older negative credit information to fall off your report.

That’s it — it’s surprisingly simple. The problem is, people don’t always have the diligence to stick with the work involved for #1 and #2, and they don’t have the patience to wait for #2 and #3. But the truth is: It takes work and patience, and the longer you apply both of those two things, the better your credit will be.

You can start to see your credit report increase fairly quickly. If you start with a very low credit score, it could take a while, perhaps even a couple of years, to see your credit improve. That makes it difficult for people to make positive changes because it can seem so easy to extend your bad credit habits for one or two more days. It’s hard to maintain good credit habits for months when you may not see immediate results.

But the results will come! You should start to see results in just a few months (especially if there were errors), and within a year of perfect credit habits, you will likely see a dramatic improvement … and within a couple of years, you can have stellar credit. At the time it might seem like it will take forever, but you will look back at the end and realize that it went quickly and was totally worth it!

Image: DragonImages

The post How Long Will It Take To Achieve Better Credit? appeared first on Credit.com.

It’s Divorce Season: Here’s How to Keep Good Credit While Splitting

No one ever said divorce would be easy, especially when it comes to your finances. But if you’re contemplating a break, have hired an attorney or have just been served papers, managing your credit should be of utmost importance to you. Your finances, like your personal situation, are going to change, and you’ll need to protect them to secure your financial future.

New research from two University of Washington sociologists shows that divorce-filing rates peak in August, right after summer vacations. Their research was based on analysis of divorce filings in Washington state between 2001 and 2015. To help you get through this uncertain time, we reached out for some advice to John C. Heath, a credit expert and consumer attorney for Lexington Law, which is affiliated with Credit.com. Here are some of the things he said to keep in mind credit-wise as your case wends its way through divorce court.

1. Pull Your Credit Reports

“You’ll want to pull your credit reports and take a look at what’s on them,” says Heath, because there’s a chance you may have joint credit accounts with your soon-to-be ex-spouse that you aren’t aware of, or worse, you’ve been put on accounts without your spouse telling you. If either of those are the case, you’ll want to make sure to address it, whether that means putting the account on ice until things are settled, deciding on who will take what responsibility or having your ex-spouse or yourself removed from the account.

You’ll also want to check your report for any errors, as these can sometimes lower your score, making it hard to secure new lines of credit. (You can learn more about disputing errors on your credit report here and view a summary of your credit report, updated monthly, for free on Credit.com.)

2. Avoid Taking Out New Lines of Credit

“One other thing you won’t want to do is take out any additional credit,” Heath says, because it may wind up affecting your soon-to-be ex-spouse’s credit file. For instance, if you’ve co-signed on a loan for your spouse and decide to apply for a travel rewards card, you could overextend your finances, making it harder to pay for the loan. If you fall behind on payments, or worse still, default, this could impact your spouse’s credit. Taking on more debt than you can handle could also exacerbate an already tense situation where you’re juggling attorneys’ bills with daily expenses.

3. Draft a Budget

Tough as it is, accepting and adjusting to your new financial reality is a must if you want to move forward, says Heath. “You’re going to be entering a time where, if you had a joint account, that money is no longer available to you,” he says.

Your situation may change in other ways as well. For this reason, it’s important to have your own funds set aside, so you can pay bills on time, and in full, without worrying. With things at home changing, you’ll also want to make sure you’re able to afford what you need to get by, be it a car, a home, student loans or anything else.

With your credit in solid shape, you’ll be able to finance an auto loan, a mortgage or whatever other type of loan is necessary for starting your new life.

Image: stevecoleimages

The post It’s Divorce Season: Here’s How to Keep Good Credit While Splitting appeared first on Credit.com.