Is your credit naughty or nice?

By George Cole

In today’s economy, you need good credit to do just about anything – or at least to not have to pay through the nose to do what you want to do. Your credit is checked when you get an apartment, finance a car, apply for a cell phone contract, and even when you set up a new account with some utility companies. And if you don’t have a “favorable” score, you may pay a lot more or even get turned down.

But I have to wonder, if so much of our integrity is measured by the FICO system, why are only 4% of Americans getting official copies of our credit reports?

Maybe it’s because we’re scared of what we’ll find…

The ghosts of bad credit decisions can haunt your credit report for a long time – late payments, judgements, and collections can stay for 7 years and some bankruptcies hang around for 10.

However, your credit behavior over the last 2 years is what creditors will weigh most heavily. If you’ve had troubles in the past, now is the time to dig in, figure out where you stand, and make a plan to polish up your credit.

STEP 1: Get a copy of your credit report, including your score. There are a few ways to do this. Choose one to do now, one to do after 6 months of hard effort on your part, and save the third for a year into your credit repair journey.

Experian: Sign up for Experian’s credit monitoring for $1 for a 7 day trial. Cancel before 7 days to avoid paying additional fees.

Transunion: Get another 7 day free trial for only $1 from TransUnion here. Just be sure to cancel it before the trial period ends so you are not charged.

Equifax: This third major credit reporting company offers a 3-scores-in-1 deal free for 7 days. This plan costs $17.95 a month after the free trial period.

STEP 2: See how your FICO score compares

By National Average:
average FICO score distribution

The greener your bracket… the better your score! Scores over 600 are considered fair, over 650 are good, over 700 is very good, and over 750 is excellent.

By Age:
FICO scores by age

There’s a lot of information in this graph, but the gist of it is that older people tend to have better credit scores because they have a longer credit history and younger people have lower scores because they have not had the time or opportunity to establish good credit.

To see where you compare, find the color for your age and see how tall that bar is in your score bracket at the bottom. For example, if you are 40 years old, look at the green bars. If your score is in the 600 – 649 range, you’ll see that about 13% of people your age are in that range too.

By Region:
fico scores by region
As you can see here, average credit scores are higher in the northern and western states and tend to be lower in the south.

STEP 3: Understand what your FICO score really means!

It all comes down to interest rates. Good credit = better rates. Poor credit = lousy rates. You can still buy a car, a home, or take out a loan for college, but you’ll pay double or triple in the end once all the interest is added in. Take a look at this chart for a moment. It compares what your financing rates would be for different FICO scores. Where do you want to be?

fico scores and interest rates


STEP 4: Make a Plan

Improving your credit score can take time, but there are a few things you can do to get the ball rolling faster:

1. Examine your detailed credit report for errors. If you find any, call us right away and we can help you have them corrected or removed.

2. Start paying ALL your bills ON TIME! No exceptions. Make a budget and stick to it. If you have to pick and choose what to pay now and what to pay a little later, read this great article from US News and World Report

3. If you have a little extra in your budget one month, it is better to pay off a few smaller balances to zero than to make one payment to a larger balance. But… DO NOT close those zero balance accounts! Keep them open and use them once a year to keep them active.

4. Start establishing new credit. If you’ve had a difficult past, or have had a hard time recovering from a tragedy like identity theft, divorce, illness, or the death of a spouse, your credit score may need a lot of TLC. Here are 2 ways to start:

• You can ask a close relative (grandparent, parent, or sibling) with good credit to add you as an authorized user to one or more of their lines of credit. If they seem hesitant (and they probably will) tell them to have the new card sent directly to them and that you will not actually use the account. You only want to prop up your credit score using their excellent credit history until you can get your credit back in order. Make sure your relative understands that the flow of this credit information is one way only – your bad credit will not affect their good credit.

• Apply for a secured credit card. You’ll have to make a deposit to secure the line of credit, and probably have a relatively low spending limit. Just be sure to ALWAYS watch your spending. Some of these cards will allow you to spend over your limit and then charge you outrageous “overdraft” fees. Pay ON TIME every month.

After about 6 months, recheck your credit score with one of the credit reporting companies and see how you stand. If your score has improved, try applying for a traditional credit card. You may even be able to find one that includes your FICO score in every statement!

Knowledge is power… but credit knowledge is all about the interest rates. Get educated, get motivated, and start building the financial future you deserve!

If you have any questions, please give us a call at 770-952-5168 or contact us online.

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