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We have the secret the credit bureaus don’t want you to know about. Pay $29.95 per month for this credit monitoring service and we will throw in some nano technology and give you lots of buttons to push and knobs to turn; it will keep you child entertained for hours.
We all have seen ads this on the internet or stuck to a light pole or on a yard sign.
We know deep down that it is just a bunch of hot air.
Or is it?
Could they have finally found Big Foot and unlocked the credit secrets that “they” have been hiding from us all these years.
Who are “they” and why have they been holding out on me? So many questions…
I must admit that first paragraph was kind of fun to write. I have been teaching anyone would listen about credit and credit scoring since June of 2003. Most of the people I deal with believe lies or at the very least, partial truths.
People that have trouble with the credit and credit scoring rules might have these thought processes in common:
- Think there is a short cut.
- Are not willing to invest much time in education.
- Think their problem is unique.
- Think their credit issues can and should go away immediately.
- All creditors are out to get them. That one is kind of true, but easily remedied with a solid credit education.
Personal opinions are not welcome in the world of credit.
Creditors dictate what is right and wrong. Simply put it is the Golden Rule: their gold, their rules. Thinking like a creditor is a must. Your credit report is your résumé for the lenders. Does your credit report say you will pay 5 days early or will they have to threaten to break your legs to get their money? Does your credit report say that although you did have a rough time a year or two ago that things are much better credit wise now? Is your credit related issues a one-time thing in your life or is it a lifestyle? The great thing about credit is the day you start doing what you need to do concerning your credit score marks the day your credit score responds. Learn from your mistakes and move on.
Now that all of that is off my chest I can get about the business of revealing the best kept secret that is not really a secret. Are you ready? Buckle up, because it’s ShowTime. 1. Credit scoring is so simple it’s complicated. It’s complicated because it is specific. It is a software program. Almost every breath you take has a credit risk assessment value assigned to it. Learn to give the computer program what it wants and it will give you what you want; which is a higher score. Anyone can have a 700 plus-credit score. You don’t have to be rich and you don’t have to be old. I worked with a 19-year-old young lady looking to buy a house. She had a middles score of 760. Her problem was not score, it was not enough open, active accounts to satisfy lender requirements. Her problem was solved in one day and the topic of future blog.
What are the credit rules? You need to have credit and pay interest, not too much credit and too much interest. 2. Good credit adds points and bad credit takes points. For your score to rise you need to have more good credit than bad and be in the process of getting yourself to $0 in bad debt. This doesn’t have to be done overnight but it does need to be done.
Understand the credit scoring breakdown so you can stop making avoidable mistakes
- 35% of you score is if you pay your bills. This is very simple and easy to understand. No further explanation needed.
- 30% of your score is if and how you manage you’re revolving debt. If you don’t have revolving credit you are missing out on 30% of your scoring opportunity. Having a properly managed credit card is huge. The key word is properly. Credit does not discriminate. A properly managed $200 credit card gives as many credit points as a properly managed $20,000 credit card. It is all in the balance to limit. The credit report does not know how much money you make. It assumes income generation based on the balance to limit ratio of your total revolving debt. If you have low balances, 10% or less total balance to limit, then your credit cards are a convenience. This shows you manage your money and are a good credit risk. You will be rewarded with credit points every month. The higher your balance to limit on your total credit card balances the fewer good points you receive.
- 15% of your score is length of credit. Credit scoring and fiscal responsibility are two different conversations. You must have credit and pay interest. Not too much credit and too much interest. The longer your accounts are open the more points you receive. Opening and closing credit accounts hurt your credit score.
- 10% of your score is credit mix. Remember this is about them. It is their rules. Having only installment loans and no credit cards is not good. Multiple types of credit on your credit report is recommended. Maintaining a healthy credit mix does not have to be expensive. I regularly tell my people that you can have all the credit you need to push your scores to beyond 700 and pay less than $5 per month in interest. It is not a debt derby.
- 10% of your score is new credit or activity, including new accounts and inquiries. This is the only true negative category. The creditors’ main fear is you have forgotten your good manners and decided to load up on your credit. Creditors assume you will start living a careless credit lifestyle. This never goes away; consider this their default setting. Keeping all activity on your credit report to only what is truly necessary will limit point loss.
1. Credit scoring is so simple it’s complicated. It’s complicated because it is specific. It is a software program. Almost every breath you take has a credit risk assessment value assigned to it. Learn to give the computer program what it wants and it will give you what you want; which is a higher score.
2. Good credit adds points and bad credit takes points. For your score to rise you need to have more good credit than bad and be in the process of getting yourself to $0 in bad debt. This doesn’t have to be done overnight but it does need to be done.
3. Understand the credit scoring breakdown so you can stop making avoidable mistakes
This stuff really isn’t rocket science and a big part of it is us learning not to shoot ourselves in the foot. Nobody makes us miss payments or take bad loans.
Get hungry for good information.