It has been stated that the best time to plant a tree was years ago, the second-best time is today! And in terms of improving our credit standing, it is imperative to take actional steps today, if we are to accomplish our financial goals as a consumer. In a recent episode, a credit expert authored a book encouraging teens to start familiarizing themselves to how credit scores can impact their future since the educational system has fallen short in this regard. In this blog with your permission, I will speak about improving our credit history, succinctly, forthrightly, and without any gingerbread. Therefore, I encourage parents to help their teens to prepare them for the real world of credit, however, many parents find it a taboo to discuss this subject with their own, often because their own credit standing, in many cases, is tenuous at best. To begin with, FICO® Scores are used by the most worthwhile lenders and I would venture to say around 90% of them. I know that there several credit monitoring companies out there, and even free of charge, however, their motive is only to solicit you with credit card offerings but are not offering you the actual FICO score information you need to confidently apply for credit from preferred lenders. Unfortunately, home buyers will enter a contract for a home based on scores indicated by these monitoring companies, to find out much to their chagrin, their scores are diametrically different from actual FICO scores, thus the transaction falls apart.
At this point, you may be asking what is the Average FICO Credit Score? There is a spectrum of the scoring formula, ranging from 300 to 850, and for you to know, over the years in the real estate industry, I have never seen anyone have an 850 FICO score. Is it possible? Probably not, it may only be serving as an incentive. A 680-credit score or better is considered a good average credit score, however, any score above 740 is considered excellent. Every expert in the industry, credit bureaus, and mortgage officers have a different point of view, or dictated by lending policy, as to where the threshold between good credit and not so good credit is defined. It boils down to what you are applying for, a mortgage loan, an auto loan and so forth, it may be considered negative by one lending agency, but acceptable by another. These favored lenders are looking for, at a minimum, 6 months of credit history to obtain a FICO® Score to better evaluate your creditworthiness, so please do not waste your time in these so-called (free credit monitoring agencies) which do cost you in time and disappointment. How do I obtain my Fico scores you may be asking yourself? The initial step would be to request your annual credit report from the three major credit bureaus, Equifax®, Experian® and TransUnion® which are not governmental agencies but are proprietary. If there are errors or omissions on your credit report, they could impact your credit score negatively. However, everyone has the right to dispute errors or incomplete information in their report, and they will provide you with instructions on how to do so. For your information, FICO is the acronym for the Fair Isaac Corporation founded by Bill Fair who was a data analyst, and Earl Isaac an electrical engineer, in 1956. Yes, this is an arbitrary score monitoring formula of which most lenders today utilize FICO scores when making lending decisions of whether to offer mortgage loans or credit cards, establishing interest rate and terms. And banks may also utilize this FICO scoring algorithm when approving checking account application, savings accounts and establishing the terms of these accounts. It is superfluous to say you must Pay your bills on time, this is understood, but sometimes we inadvertently miss a scheduled payment, this is called being human. Of course, paying all your liabilities in a timely fashion will boost your scores, your payment history is the driving force for improving your credit outcome. And bad or fallacious information in your history like late credit card payments will alter your credit score negatively for years to come. However, I will say that older negative information such as collections, and missed payments will count less than more up-to-date information. For example, if you have a collection from a few years ago, do not pay it off without first consulting your credit advisor, for it will hurt your scores because of the fact you made it into a recent activity when satisfied. Unless you consider it a moral obligation to pay it off regardless, and I will leave that for you to decide, I am not your conscience, just informing you how the cow eats the cabbage. Some may be wondering about why not hire a credit repair company, it is an option to consider. But from my perspective, why spend hard earned money on something you can do yourself by contacting the above-mentioned credit bureaus directly? Most of us can read and write, that is all it takes; And I suppose most of us went up to the fourth grade. You could also consider setting up automatic payments or reminder alerts to assist you to maintain consistency in paying your bills. Incidentally, when you only pay the minimum payments on credit balances, like credit card, it will keep your accounts current, but if you only pay the minimum, yes it will be current, but you will pay more in interest in the long run, and it does not improve your scores significantly. Some credit advisors advocate becoming an authorized user on a credit card, will this help you to improve your credit scores? Yes and no! If you have a family member or someone you trust with an excellent credit score, they can add you as a piggyback or an authorized user to their account. However, as we know, life is a variable event, the primary card holder finances may go south for several reasons, and this will also topple your credit standing. Why not go at it on your own by considering a secured credit card that is readily offered by most banking institutions. Deposit a $500-$1000 into a secured credit card account, and this may be the answer to strengthening your credit worthiness. You can use the card to make purchases, like a traditional credit card while your bank reports to the three credit bureaus as you use the card responsibly. I must emphasize emphatically to keep some of your credit line available. The credit you use is called (credit utilization), This is important to understand, since maintaining your credit utilization below 30%, or better yet, satisfy the balance monthly, hence, demonstrating you are managing your credit with discipline, not going hog wild and spending up to the maximum credit limit. Unfortunately, in today's social environment, it demands immediate gratification, and rebuilding credit worthiness is no exception. Rebuilding your credit will require you to be patient, it will take some time. And rest assured, it will not take years as when you planted your first tree, just how long? It is all up to you to how diligent and disciplined you are, and these principles are what must be instilled in your sapling, your teen, for their future financial success. The great news is most credit items will not impact your score for eternity. And the end results, the negative factors will be mitigated over time. Showing fortitude and establishing good credit habits will be the best solution overall!
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