Tracking, improving credit score can lend help in loan decisions
Posted May 19
Did you know your credit score follows you just about everywhere? The three digit number can cost or save you thousands of dollars. But few people know what their score is, what goes into it or how much of their life it impacts.
Many realize it affects credit card and loan approvals, as well as interest rates, but don’t know it impacts car and home insurance rates, the amount of rental utility deposits you'll have to pay, even whether you’re hired for a job.
Five things weigh into your score, with the most important being your payment history and how much you owe. It also depends on how long you've had bad credit, if you have any new credit applications and the types of credit you have.
"It plays such a vital role in so many different avenues of your financial health," Mark Kretzschmar, a senior vice president of loan servicing at State Employees' Credit Union, said.
Kretzschmar knows plenty about credit scores, but he says many people do not.
"One of the bigger misconceptions is that applying for credit will have a dramatic impact on your credit score. It typically will not. It will affect it, but typically, it's only a few points," Kretzschmar said.
Consumers should shop around for a better rate, as long as it's in a short time frame such as a period of weeks instead of months.
Another misconception – based on a TransUnion survey – is that 61 percent of people thought paying off overdue debts automatically and significantly improved their credit score. Kretzschmar said that's not true.
"It's going to take time for you to reestablish that positive payment history before you'll see a substantial change to your credit score," he said.
Nearly half of the survey respondents said they believed rent or cellphone payments count toward their credit score, and almost half thought a raise would improve it. Both beliefs are false.
"Nobody reports income directly to the credit bureaus," Kretzschmar said.
Typically, anything above 700 is considered a good credit score. The average for most consumers is between 600 and 700. Experts say anything below 600 means that consumer has work to do.
"The most important thing to do is pay your bills on time. Make sure you know what's on your credit report," Kretzschmar said. "Try not to use all the credit that's been extended to you and don't apply for credit often if you don't need it."
Kretzschmar also has a warning about an increasingly common "hit" he sees on credit reports: medical bills that were quickly sent to collections.
"We pull their credit report, and a lot of times that consumer is unaware of the fact they've got a $100 collection item on their credit report from an X-ray they had three years ago," Kretzschmar said.
In 2014, FICO created a new assessment called FICO Score 9, which separates unpaid medical collections from other collections so they have less impact on the overall score. But many lenders aren't using it.
It all boils down to the need for consumers to regularly check their credit report to make sure there are no errors. You can get a free one every year, from each of the three major credit bureaus – Experian, Transunion and Equifax.
Consumers can access those at annualcreditreport.com. Experts say it's a good idea to pull one every four months to keep a close eye on things.
"We just recently started monitoring our children's credit reports, too," consumer Kim Cannon said.
Experts say that's a smart idea as scammers have started stealing children's identities. Typically, no one finds out about the theft until either the parents have problems filing their taxes or the child grows up and can’t get a student loan or credit card.
No matter your age, the information on the report ultimately makes up your credit score. Typically, you must pay to get the score, although some banks and credit card companies now offer “free scores” to customers.
Know though, either way – the one you get may not be the one officially used to rate your credit risk. That's why to make sure the credit score that follows you is as high as possible, you’ve got to maintain good credit and regularly check the accuracy of your credit report.