Your credit history is one of the most important things that you will carry through life. Although you don’t physically have control over the number, your actions and habits when dealing with finances and outstanding debt determine your creditworthiness, and therefore, your credit score. Though you may prefer to operate using cash or checks for your financial transaction, credit scores are necessary for thinks like securing insurance, renting an apartment, starting service with a utility or cellular provider, and for some, a credit score affects their ability to get a job. When the goal is to have a high credit score, as these numbers indicate fiscal responsibility. A low score happens when you don’t meet your debt obligations, have late payments, open too many credit accounts, or declare bankruptcy. It can take one or two poor decisions to ruin your credit score, but it can take a lifetime to build up your score. Your credit score isn’t improved by magic or forceful efforts on your part. You have to rely on your creditors and lenders to update the reporting bureaus for changes in your account history, and positive changes or adjustments are your responsibility.
The Credit Bureaus
Here in the U.S., there are three primary credit bureaus that lenders use to obtain your credit score. They are Experian, Equifax, and TransUnion. Although there are over 50 types of FICO scores that can be retrieved, these bureaus have specific ones that they will check depending on a lender’s request. There have been changes made to the scoring models over the last few years, which could result in a new FICO score for some consumers. Any creditor where you have an open account and still have debt can report you credit history with them to any or all of these credit bureaus. Though each bureau tends to receive the same information from a lender, the reporting bureaus don’t talk to each other and share information among them. For this reason, you may have some accounts that show up on one credit report and not others. However, the ways to maintain and improve your credit score and report are the same no matter where you pull the information.
Positive Credit History
Each lender, whether a credit card issuer or mortgage holder, will report the status of your account to the credit bureaus. They send information like your current balance, any missed payments, and any other important account information. Because the reporting occurs each month, your credit score isn’t a static number. It can fluctuate with just one late payment. All of the information is compiled and used to generate the score that lenders will see whenever a request is made. You can make sure that the information your creditors are sending to the bureaus is building a positive credit history when you keep your payments on time and you keep low credit card balances. It can take several weeks before the information is updated or reported, so any positive changes that are made won’t have an immediate effect on your score. However, remaining patient and financially responsible in the meantime further improves your reporting information.
Challenges to Positive History
If you don’t have any open lending or credit accounts, you won’t be able to build a positive credit history. If you know that your long-term goals will be to purchase a house or a car, you should begin to establish favorable credit history now. You could start with an application for a low limit credit card or a retail store credit card. These are often easier to secure when you haven’t established a credit history, but if this doesn’t work, there are other options. You could always ask a relative or friend to co-sign or sponsor your credit application or you could ask to be listed as an authorized user on one of their active accounts. If the primary cardholder has a strong credit payment history, you could benefit from their fiscal responsibility. However, if you don’t take care of your credit card payment or you max the card limit, your reckless behavior could hurt the co-signors credit. Don’t ever fall into the trap of using piggybacking tactics to improve your score, as becoming an authorized user on a stranger’s account opens up several liabilities.
Maintaining a Good Report
Once you have established a strong credit report, your actions will influence how long you keep a favorable credit score. If you are trying to build up your history, you need to avoid habits that can lower your score and hurt your credit. Just one late payment on a credit card or bill could lower your score over 20 points. High credit card balances can also lower your score, as the utilization category accounts for about 30% of your credit score. If you have one credit card and feel empowered, don’t rush to open several more applications. This shows reckless spending behaviors and these behaviors lower your score as well. It is okay to have low limits on your credit cards or very few open accounts. Starting small helps you learn how to manage your credit and demonstrate responsibility. Just because you can spend one thousand dollars doesn’t mean you should. Credit card history does not only include the length of time but also how much restraint you have shown on your usage. Keep your balance below 30% of the card’s limit for the best reporting information. Creditors will extend your limits when they are confident you aren’t a risk.
There are times when your credit report will contain negative information that is inaccurate to your account history. Leaving these errors unresolved can damage your credit score, so continually review your report for accuracy. You can use the dispute process to work with bureaus to have reporting errors corrected. You will need to have adequate documentation as proof that an error was committed.
Protecting your credit score is one of the most strategic moves you can make regarding your financial potential. Thankfully, you can proactively address low scores and take steps to build a positive credit history.0