Now is a great time to get financially fit
With the arrival of the New Year I’m sure you have seen ads or commercials for exercising, getting your home organized and many other popular resolutions. Now is also a great time to get financially fit. I get asked lots of questions about credit. Scores, freezes, and all the caveats in between? Let’s take a basic look at how it all works.
Still today, the five Cs of credit provide us guidelines to protect both lender and borrower from excessive risk. Credit history plays a big role in the Character factor. In today’s environment, credit matters to practically everything. It can affect your ability to get a loan or credit card, a job, renting a home, and even your insurance premiums. Lenders, landlords, employers, and others want to know how you handle your bills and finances. Most people are surprised to find out that in addition to open debts listed on the report, public records like tax liens are also reported. Often accounts such as utilities, taxes, and medical debts that were sent to collection agencies are also reported, in addition to previous bankruptcies. Inquiries are also disclosed so every time a credit report is pulled, it becomes part of the report.
Did you know the Fair Credit Reporting Act provides you the right to get a free copy of your credit report once every 12 months from the major credit bureaus (TransUnion, Equifax, and Experian). To get your free reports go to annualcreditreport.com. Be sure to take the time to review and check the report for correct information. A great first step in improving your credit is knowing what is actually there. Unlike the free report, unfortunately, there is no free annual credit score. Be careful of services that charge for the score and credit monitoring. You may pay for something you don’t need. Before you decide to pay a company to get your score, ask yourself if you really need to see it. If you know your credit history and performance is good, then your score will be too. While knowing your score is interesting, do you really need to pay money for it.
Credit scores are calculated by complicated algorithms and each of the three main bureaus have their own calculation. There are different weighted factors that affect your credit history. While the factors can vary by industry, generally the most popular one that lenders use is the FICO. FICO takes into account how much credit you have, how much is in use, repayment history, types of credit, and length of time you have had accounts. Generally, scores range between 300 and 850. The higher the score, the better, and generally indicates you are less risk, which means you are more likely to be approved for credit and could pay less for your home and auto insurance for example. Having a lower score could make it more difficult for credit approval and potentially cost you more in higher interest rates and premiums.
As fraud continues to be on the rise you may have concerns about identity theft and hackers. One way to limit exposure of your report is by placing a credit freeze. This can be done by simply contacting each of the bureaus. Keep in mind, if you do decide to apply for credit at some point, you will need to request those freezes be lifted to allow for the credit check and then put the freeze back on once the lender has retrieved the information. While placing a freeze does prevent access to the report, it doesn’t completely stop the fraudsters. It’s important you still review your bank statements, credit card bills and insurance to ensure there haven’t been charges or changes you didn’t authorize.
Bottom line, your credit report and score impact much more than just credit approval and denial. Take the time and dig into your credit. Lenders can quickly determine how well you have handled your finances, so I urge you to ask questions and be open and honest with your lender regarding your credit. This will not have any impact on your credit score, but will go a long way in establishing a long term relationship with your lender. A few other quick tips I can provide you with are to pay all of your bills on time, every time, keep the balances on your revolving credit cards to 30 to 50 percent or less of the available credit, and have at least one active major revolving account, such as a bank credit card.
Erin Harvey, is the CRCM, vice president at Community National Bank & Trust in Lamar, Mo. She may be reached at [email protected]