Having a good credit score is incredibly important if you want to get a credit card with a decent interest rate, qualify for a car loan, or qualify for a home mortgage. The first step to having a good credit score is to understand the three agencies that creditors report to: Equifax, TransUnion, and Experian.

It’s important to know how your credit report is going to be different on each of these agencies. They all feature slightly different information. Here is a general overview of each of the agencies.

Equifax

In an Equifax report, all accounts are summarized as being open or closed. This makes it a little easier to look over all of your open accounts to decide which ones you need to focus on to improve your credit score.

There is an 81-month credit history for each account on the report from Equifax. Some accounts may also have a statement that accompanies them, which says “no 81-month payment data available for this display.”

TransUnion

On the TransUnion report, a more detailed employment history is listed than on the other two reports. Every account is listed as either “satisfactory” or “unsatisfactory”, and there are color-coded boxes that are featured with every account to better visually describe your payment history.

So, for example, if there is a yellow box that says “30,” it means that you were 30 days late on a payment whereas a green box that says “OK” means that your payment is current. If a white box with an “X” is present, it simply means that there is unknown information associated with the account or payments.

Experian

There are some unique things featured on the Experian report that aren’t featured on the other two reports. For example, the report has a “balance history” section, which indicates what your credit/balance has been for the past decade throughout different time frames. Each account will also have “status details” that are listed, and these will indicate when the accounts will fall off your report. So if you had an account closed in April 2016, it will explain that this account will stay on your report until April 2026.

Some of your basic information is going to be listed on all three reports. For instance, your personal information like your name, known previous addresses, and date of birth is going to be listed. You will also see some sort of summary of all of your accounts on each report.

Once you have a better understanding of the three reports from the three different agencies, you are in a much better place to analyze your free credit report. Fortunately, there are websites like Credit Sesame where you are able to obtain a free copy of your credit report. Once you have a look at this, you will see how you could go about improving your credit. If your credit score has fallen, repairing it can be the best way to ensure that your financial future is secure.

Differences Between Equifax, TransUnion, and Experian is a post from: When Life Gives You Lemons. Did you like the post? Follow me on Twitter, like me on Facebook, or hop on over to my blog and leave me your feedback.

There are few quick shortcuts to improving a credit score, but there are some big moves that can raise it dramatically.

Here are some of the biggest moves you can make to improve your credit score:

Know your credit score

Start by checking your credit score at AnnualCreditReport.com for free. The three credit reporting companies must give you a free report once a year, so you can either get all three at once or spread them out by getting one every four months.

The score you receive represents your credit risk at a point and is meant to measure your future credit risk. Scores from the Fair Isaac Corporation, or FICO, are most widely used, with scores ranging from a low of 300 to a high of 850.

The higher the score you have, the more likely you are to be approved for credit and get the best loan rates for auto loans, home loan and credit cards, among other things.

Here’s a breakdown of what the scores generally mean:

• 781 and above: Excellent credit leading to lowest interest rates.
• 661-780: Very good with access to most lines of credit.
• 501-600: Fair with slightly higher interest rates.
• 500 or lower: Poor credit and difficulty getting credit.

Once you have your credit report in hand and know your credit score, you’ll know what you’re up against and can start working to improve it. Now comes the hard work.

Dispute errors

Your credit report is full of all kinds of useful information. It shows accounts you have open and closed, collections, tax liens, employer information, your name and address, among other things. It can also list a credit card account that doesn’t belong to you, meaning someone may have fraudulently taken out a credit card in your name.

You want to check the report for inaccuracies and then dispute them with the credit reporting companies so that the wrong information is removed from your credit file and your credit score is improved.

For example, a report may list a closed credit card with an unpaid balance, when you know you paid it off. A copy of your last credit card statement showing the card paid off and closed should solve this, and should be included with your dispute letter.

The Federal Trade Commission has a sample dispute letter for reporting errors on your credit report. The credit reporting companies have 30 days to investigate your query.

Pay bills on time to improve your credit score

Being on time, as your kindergarten teacher probably told you, is an important lesson that will serve you well in life. It’s important for a credit score.

Payment history accounts for 35 percent of FICO credit scores, and is the first thing any lender wants to know about you. If you’ve paid your credit accounts on time in the past, chances are you’ll continue to, the thinking goes.

A few late payments won’t kill your credit score, and having no late payments won’t lead to a perfect credit score.

But they’re the single biggest factor in a credit score, so not being late or missing a payment is important. A long history of making payments on time is also important.

FICO scores consider how late the payments were, how much was owed, how recently they occurred, and how many late payments there are.

Use your credit card less

This sounds like an obvious thing to do, and a difficult one, but paying off your credit cards each month and using less of the credit amount available to you is important. The amounts owed on accounts determines 30 percent of a credit score.

You’re not expected to have a zero balance on your credit cards, but should just use 10 percent of the credit amount you’re given to get the best credit score.

Using a high percentage of your available credit can indicate you’re overextended and are more likely to make late or missed payments.

This percentage is called a credit utilization ratio. It’s the percentage of your available credit you’re using on revolving accounts — meaning credit cards.

Here’s a simple example: If you have a credit card with a credit limit of $1,000 and you’ve charged $400 on it, you’re using 40 percent of your available credit and have a credit utilization ratio of 40 percent. To get down to 10 percent utilization, you’d need a balance of $100.

Even if you pay your credit card bills in full each month, you still may have a balance and a credit utilization ratio above 10 percent as you continue using a card.

The number of accounts you have is also a factor. Having a large number of accounts with amounts owed can indicate a higher risk of over-extension. If you do have a few credit cards, keep all of the balances low to help improve your credit score.

Open a credit card, or two

This sounds counterintuitive, but opening a new credit card account or two can help improve your credit utilization ratio. The ratio will drop by increasing your overall credit limit.

But doing this comes with a few caveats.

Your credit utilization ratio will only drop if you don’t use the credit cards or keep the balances below 10 percent of the limits.

If you already have a low credit score, getting approved for a new credit card may be difficult. And adding a new credit card to your wallet may not be a good idea if you have problems keeping a lid on spending or don’t pay your bills on time.

As detailed above, amounts owed equals about 30 percent of a credit score, so opening a new credit card can lower your utilization amount and make it look like you’re using less of your available credit. Just be sure to use it wisely.

New credit accounts for 10 percent of a credit score, so adding one new credit card to you credit profile won’t improve it much. But opening one or two new credit cards each year shouldn’t hurt it if used well.

Keep at it

Whatever steps you’re taking to improve your credit score, know that it’s a journey that can take years.

While the above steps can lead to relatively quick improvements in a credit score, they’re also things that should become habits if you want to keep your credit score high for years to come.

Checking for credit report errors, paying your bills on time and keeping balances low are some of the best ways to improve your credit score. They should help you gain access to better credit terms, eventually leading to lower interest rates and saving you money.

Biggest Moves to Make to Improve Your Credit Score is a post from: When Life Gives You Lemons. Did you like the post? Follow me on Twitter, like me on Facebook, or hop on over to my blog and leave me your feedback.

A credit score can be used in ways other than in determining what interest rate you’ll pay on a loan. It can also be used by employers, landlords and utility companies — with your permission — to determine if you should work, live or be allowed to sign up for electric service without a deposit.

Small credit score drop is fine

But not all of those look at your credit score as much as you might think. There are some times when it can be OK to let your credit score drop by a few points.

For example, if you don’t plan on applying for credit in the next six months or so because you’ve already got a car and house, then a small drop in your credit score shouldn’t hurt you. You still want to keep your credit in good standing, but there is some wiggle room.

Your credit history can be more important in non-lending situations than your credit score.

For example, an employer that pulls a curated version of your credit report may be more interested in verifying a work history and if you pay your bills on time than on if you have perfect credit.

A landlord requesting a credit score for a possible tenant may not be looking at a specific credit score but for red flags such as if they’re behind on any debts. One or two late payments can be enough of a warning that they may not pay their rent. A utility company may have the same reasoning.

How rewards cards affect credit

And here’s one bit of good news: Applying for credit cards just to get the rewards that they offer, including sign-up bonuses, shouldn’t hurt your credit score if you keep the cards to a minimum and pay them off in full each month. If you plan on getting a major loan within six months, then you may want to hold off of on the rewards cards.

To continue in maintenance mode with a credit score, start by checking your credit report three times a year for free at AnnualCreditReport.com. Look for errors, if fraudulent loans were taken out in your name, and if the payment history is accurate.

Clearing mistakes can take months, so checking your credit report every four months can help prevent you from scrambling if you do decide to get a loan or someone needs to look at your credit all of a sudden because you’ve found a new job or are moving.

Is it OK to Let Credit Score Slip a Little? is a post from: When Life Gives You Lemons. Did you like the post? Follow me on Twitter, like me on Facebook, or hop on over to my blog and leave me your feedback.

Without a good credit score, we might have problems getting credit cards, get a decent deal on our auto loan and so on.

A good credit score enables us to get a decent mortgage so we can buy a house for ourselves and our families.

But, what if our credit score simply is not good enough to get a deal that is acceptable for our current financial situation?

Credit scores can mean the difference between a mortgage and down payment that we pay with ease, and one we’re going to struggle with.

Financial decisions are the cornerstone of our modern lives. Not handling our finances, the proper way, may cause our credit score (and thus our credit worthiness) to crumble.

This is a vicious circle and we should avoid bad financial decisions not only when considering to buy a house, but every time we use our credit card.

Because this is a very important topic for many of us, we want to break the whole credit score thing down to some basic elements in order to give you a glimpse at what it means to have a “good enough” credit score to buy a house.

Credit Scores and Lenders

Credit scores are a numeric value that determines the amount of your trustworthiness in paying back the amount the lender is willing to give you. You have a good credit score if you have a good payment history, debt payment on time, a decent and steady income etc. All of these factors are taken into account when your credit score is calculated. The standardized formula used by many banks and lenders is called the FICO score. It is an algorithm that determines your personal credit score based on all of the financial decision you’ve done in your life.

This may sound a bit scary at first, but once you get a bit more into it, you’ll see that this FICO score is rather handy not only to the lenders but also for you. If you know that you FICO credit score is simply not good enough to land you a good deal on a mortgage, you can attempt to improve it.

This improvement can be done by changing up some of the financial habits you’ve acquired over the years. Hopefully, there are no big debts and problems financial wise, so improving your credit score can be taken on with ease.

All you need is an assessment of your current credit score status. There are plenty of services online that can help you with credit score reports and analysis, so you can start improving your credit score from the comfort of your home. To check your free credit scores now visit Cafe Credit.

How do credit scores affect interest rates?

Lenders and banks are businesses. We have to get this into our heads. They’re not charities that want to help, they’re businesses that want to make money. When they grant you a mortgage, they’re expecting to make a profit over the years through interest rates you’re going to pay them. These interest rates are determined by your credit score. If you have a bad credit score, the lender might still give you a loan or mortgage, but he or she has to have a bit more security by doing this. That’s why they put a higher interest rate on your loan, because they’re engaging in a bigger risk by giving the loan to someone with a “bad credit reputation”. However, if you have an excellent credit score, the lenders think of you as someone who can pay back the loan with ease, and thus offer you a great deal so you do business with them.

What credit score do I need for buying a house?

You can get a mortgage with a credit score as low as 500 points. However, you should be prepared for some very high interest rates in this case. It is safe to say that, if you have a credit score between 500 and 600, you should reconsider getting a mortgage at all. Only if it is absolutely necessary and there’s no other way, a mortgage with this credit score would be even considered. And, if you decide to do that, be certain that you can handle the monthly payments so you don’t get sucked deeper into the vicious circle of bad credit scores.

With a credit score between 601 and 699 points, your mortgage will be affected with interest rates 4-10% higher than the lowest available rate for the mortgage you’re applying for. This means that, if the lowest mortgage rate possible is 10%, you might get a rate of 11%-14% with the credit score you have in this example.

A credit score of 700 and higher will land you in the golden zone of loans and mortgages. You’ll probably get the lowest rates possible and thus getting the best deal possible. However, if you’re lucky enough to land such a good deal, be aware of the potential risks it entails. There are many cases in which people with excellent credit scores get loans and mortgages, only to then fall behind on their payments and damage their credit scores for good.

Improve your credit score before applying for a mortgage

One of the best tips we can give you regarding your credit score, is trying to improve it with all means you have at your disposal. Every time you’re applying for a mortgage, it can affect your credit score, so don’t simply rush into applying for one before checking what you can do to improve your odds in getting a good deal.

While credit scores may be tedious when trying to buy a house, they’re there for a reason. Understanding that reason is one of the first steps towards finding an incentive to improve you own credit score. A rule of thumb should be not to consider applying for mortgages if your credit score is lower than 650, as you will definitely get a lousy deal out of it.

Best Credit Score for Buying a House is a post from: When Life Gives You Lemons. Did you like the post? Follow me on Twitter, like me on Facebook, or hop on over to my blog and leave me your feedback.

No matter which group you belong to, you still need to know what a credit score is and where you personally stand with your credit score.

At the most basic level a credit score is: a decision-making aid for lenders to use when trying to determine your credit worthiness. In plain terms, you credit score helps banks and lenders decide if you are worth taking a risk on and how likely you are to pay back your loan in full and on time.

How this score is determined is based on your previous history with credit cards, student loans, mortgage payments, and every other kind of credit under the sun. According to myfico.com, your credit score is made up of several weighted factors, including:

• 35% Payment History
• 30% Amounts Owed
• 15% Length of History
• 10% New Credit
• 10% Types of Credit Used

Payment History

Your payment history is the most highly weighted factor in determining your credit score. Here, lenders are checking to make sure that you always make your payments on time and that you are paying more than just the minimum payment each month. Having one late payment isn’t necessarily a deal breaker, but it’s best to avoid these if at all possible.

Amounts Owed

Owing money to a couple of different creditors isn’t a negative for your credit score. In fact, lenders like to see that you are “using credit responsibly”, which usually means using around 15-25% of your available credit. When your credit usage percent reaches over 50%, that is usually a red-flag to potential new lenders. You should also be aware that some lenders actually shy away from borrowers that have too much available credit on their report too. For instance, mortgage lenders might be afraid to lend you a 30 year mortgage if you have a huge amount of available credit because it’s possible that you’ll get yourself into financial trouble after the mortgage deal has been closed.

Length of History

A few factors are at play in determining how creditors use this part of your credit history to determine your credit score. The age of your oldest account, the age of your newest account, the average age of all your credit accounts, and how long it’s been since you used credit on your accounts can all be taken into account in determining your overall credit score. One common tip for helping your credit score is to never close your first credit card as this can impact the length of your credit history negatively.

New Credit

Beware of opening too many new credit accounts in short period of time if you want to score well in this section of determining your overall credit score. Opening too many accounts can be a big red flag to lenders, especially if you have a fairly short credit history overall.

Types of Credit Used

Your credit score also looks at what types of credit you are utilizing. Having a mix of credit cards, installment loans (student loans), retail charge accounts, and mortgage loans is the best way to score highly in this area. But, don’t take on more credit accounts than you need to try to score higher in this section. It only makes up 10% of your overall credit score.

Why Your Credit Score Matters

Thought some might disagree, your credit score can have a huge impact on your life. No matter how debt adverse you are, there will likely be a time in your life when you need to borrow money for one purchase or another.

The higher your credit score, the more likely you are to qualify for the best interest rates whenever you get ready to borrow money for a large purchase. Even if you only borrow money to buy an expensive new (or new-to-you) car, or to purchase your first home, you will need a good credit score. Having a good credit score can mean saving a few thousand dollars over the course of a long-term mortgage loan.

If you never have to borrow money for any purchase in your lifetime, your credit score still matters. By avoiding buying a house you aren’t necessarily avoiding the need for a good credit score. If you rent from a property management company, chances are they check you credit score or at least your credit history. After all, no landlord wants to rent property to someone who doesn’t pay their bills on time. If you don’t have a credit score or credit history for your landlord to use, you might have to have a co-signer for your lease or rental agreement. These days, even some individuals who rent out property check the credit scores of potential new renters.

Credit scores are also used by some insurance companies to determine your auto and renter’s insurance rates, and even utility companies, cell phone providers, etc. consider your credit score before deciding if you are eligible to open an account with them. If your credit score isn’t very good, you might have to pay a large deposit to open a new account.

Clearly your credit score is important in determining a lot of things in life, not just if you qualify for a new credit card.

Do you check your credit score regularly? What steps have you taken to improve your credit score?

Photo courtesy of: Simon Cunningham

What is a Credit Score? (And Why You Should Care) is a post from: When Life Gives You Lemons. Did you like the post? Follow me on Twitter, like me on Facebook, or hop on over to my blog and leave me your feedback.