Credit repair schemes abound, but solid tools that genuinely make a difference, do not. But don’t despair! You CAN impact your credit score.
Primarily, there are three credit agencies: Equifax, TransUnion and Experian. Each one independently keeps a running tally of the following:
1) How much credit you have
2) How much of it you have used
3) The amount of you are expected to pay each month
4) When the payment is due
5) How much you actually pay each month
6) When your payment is received
The credit bureaus actually house over 70 fields of data (another article for another day), but these are the primary metrics that affect your credit rating.
The bureaus receive this information via monthly feeds from your primary creditors. Once collected, a separate company processes the data and generates your FICO score.
The FICO score is calculated by a data warehousing company, Fair Isaac. They devised an algorithm which calculates and weights the various reported elements and yields a numerical score. This score influences several factors in your life:
1) Whether you are eligible to receive credit
2) The interest rate you are required to pay
3) Your cost of your insurance premiums
4) In some cases, even your eligibility for employment
In general credit ranges breack down in the following manner:
1) The highest credit score possible is 850.
2) Anything above 700 is considered good.
3) A score of 500-699 tends to be credit-worthy, but the lower the score, the higher the interest rate you have to pay.
4) Below 500 is problematic.
5) The average credit score in the United States is 723.
One caveat to remember, however, is that in this new world of the “credit crisis,” these ranges are in flux.
Despite what many would have you believe, there is only one reliable way to achieve a good credit rating, and it has four components:
A) Open a credit account(s).
B) Use part, but not all, of your available credit.
C) Pay AT LEAST the minimum amount due every month.
D) Make your payments on time.
A Great Tool
Most banks now offer online banking for free, enabling you to view your account details online at any time. Use it, but take it to the next level:
1) Sign up for the bank’s online bill pay service:
You spend just a few minutes setting up your accounts, and then all you have to do is key in the amount you want to pay and the date the payment is to be made. Your bank then forwards the payment on your behalf. No more checks to write, envelopes to seal or stamps to affix!
2) Within your bank’s bill pay account you can set up some of your bills to be paid automatically each month. There are three criteria you can use to determine which bills to pay automatically:
A) Payment is due on the same date each month
B) Payment is the same amount each month
C) Payment goes to a creditor who reports to the credit bureau
Using these tools, payments will always be on time, your credit rating will rise over time, and you won’t have to worry about late fees.