Category: Credit Score

What Can Dramatically Affect a Credit Score

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By: Alayna Pehrson – Digital Marketing Strategist for Best Company

Credit scores are often compared to report cards in that they’re the culmination of a variety of smaller weighted scores. Since not all of these smaller scores are created equal, some changes will affect your credit score very little, while others can affect it greatly.

According to a recent report, credit card users between the ages of 30 and 40 tend to have a significantly lower credit score than those who are in their late 50s or older. The score disparity between generations is likely due to a lack of knowledge of those building blocks that make up a credit score—namely, the specific events that either help or hinder your score.

What Can Kill a Credit Score

There are many ways a credit score can be lowered. The fear of debt and financial hardship from credit lingers with the younger generations, which consequently prevents them from using credit cards at all, which in turn could contribute to a lower credit score. Establishing a healthy credit history plays a big role in your credit score. You don’t have to be afraid of credit cards if you can manage the following:

Late Payments

Although this may seem like an obvious answer, many credit card users lack the knowledge of just how much paying bills can affect a score. According to Lifehacker, payment history makes up approximately 35 percent of a total credit score. The amount that late payments can put a dent into a score also depends on how large the payments it and how late it is paid. Basically, the larger is it and the longer is it not paid, the more it will hurt a credit score.

Closing a Credit Account

For those with fair to poor credit scores, closing a credit account can have lasting negative effects on a credit score. Although many people believe that closing credit accounts will help them avoid debt, the act of closing the account will lower the overall score. When an account is closed, the good and the bad history from the account will last for up to 10 years. When you lose positive history all the good credit you accumulated goes with it. However, in the meanwhile, all the bad credit history will continue to plague you for years.

Maxing out Credit Cards

Maxing out a credit card will hurt a credit score because it raises credit utilization and shows lenders that there is less responsibility present, according to U.S News. The more that is charged to the credit card, the more that has to be paid back. With this increase in spending, the likelihood of on-time payment lowers. After all, overspending is what typically leads to debt.

What Can Greatly Increase a Credit Score

There are a few things that can help you increase your credit score by a large margin. The extent to which someone can raise their credit score obviously ranges depending on what the credit score is to begin with; however, it is still important to know what can help a credit score.

Cleaning up the Report

It is fairly easy to obtain a free copy of your credit report. The report shows if there are any late payments or if there is any inaccurate information. Cleaning up the report can make a large positive difference on a score and help raise awareness of how the card is being used as well as if there is any false activity occurring behind your back.

Opening a New Credit Card Account

This option allows credit card users to increase their scores without much stress. Although opening a new account can help you maximize rewards and can increase your overall score, it is important to know that opening multiple accounts in a short amount of time can be hazardous to your score. This can lower your score because it shows hints of financial irresponsibility. At first, opening an account will ding your score, but in the end, opening one to two other accounts can give you major long-term benefits.

Credit Repair Services

There are many credit repair services and options that can greatly increase your credit score.

Most credit repair companies and services are strictly in business to help people raise their credit scores in a relatively short amount of time. This can be incredibly helpful for those who have poor to bad credit scores. Experience is important, so picking a credit repair company that has been in business for a long time is a good way to tell if they will be able to resolve your credit score problems. Choosing a credit repair service that allows for a free consultation is also something that can save time and money when figuring out which company will address your credit score needs the best.

Overall, there are many ways your credit score can be increased and decreased. Knowing what makes up a FICO score is helpful for those looking to avoid credit disaster. The myFico blog provides a helpful resource of a Fico score breakdown that card users can refer to. There are many other useful online resources that can help point you in the right direction for your credit score needs.

Learn how you can start repairing your credit here, and carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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How Does America’s Personal Spending Spree Impact Credit Scores?

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For everyone who took a pay cut, saw their friends painfully foreclose on a mortgage, or otherwise experienced the financial misery of the Great Recession of 2008, it was certainly a challenging time for many.

Recently, as consumer confidence has rebounded with marginal increases in pay and employment numbers have increased, Americans are returning to their old big-spending ways. Our collective personal debt is inching toward $13 trillion dollars, and rising.

We’ve dug out our credit cards, returned to the big box stores, and made full-size pickup trucks the new family car, as a long run of low gasoline prices has made that an acceptable choice for buyers.

And while that’s all great for the economy, experts also suggest that a return to a heavier-than-acceptable level of personal debt can have many negative effects, especially on individual credit scores.

Consumers need to wisely balance their spending so it won’t cost them in the end when they need good credit to buy a home or rent an apartment.

The Big Picture

According to the Federal Reserve, American consumers now owe a whopping $12.73 trillion in debt on mortgages, bank and car loans, and personal consumer debt, a number that’s even higher than it was before the 2008 downturn.

We’ve collectively spent our way into a rather significant hole, though the focus of that spending isn’t quite the same as it was in the last decade. That’s when the ill-advised craze of sub-prime mortgages sent debt soaring, before crashing the system itself, leading to financial chaos, years of hiring freezes and flat pay increases.

In 2017, Americans’ biggest debts now lie in three areas: credit cards, automobile loans, and the always controversial, double-edged sword that is student loans.

Given the higher average transaction price for automobile loans, the trend of longer and longer terms for car payments also means buyers will be paying more for many years to keep themselves on the road.

The average term for a car loan in 2017 is nearly 62 months, versus the 55 month average back before 2008. Gone are the days of a four-year car loan, and the results can stretch consumers’ resources very thin when added to increasing rent payments or other debts.

Job stability and those marginal increases in overall pay may have encouraged consumers to make all those online purchases they like or to invest in wide-screen TVs, but racking up a huge level of personal debt can also be a worrisome development.

As tempting as those purchases may seem, the ability to pay bills in a timely fashion and not over-use our credit is fundamental to maintaining a positive credit score.

The Student Loan Crisis

More challenging is the $1.4 trillion owed in student loans in the United States, with graduates owing an average of more than $37,000 apiece.

While many of us are diligent in our ability to quickly and efficiently pay back those loans–or have found jobs that allow us to put more of our paychecks to use knocking down the principal owed–many consumers struggle with the ability to balance their student loan payments with the other costs of modern living.

Back in 2007, student loan debt represented smaller than 5 percent of America’s overall debt load; today, that figure is almost 11 percent and climbing. Many are just simply unable to pay those bills, and nearly 11 percent of student loan debt is overdue by 90 days or more.

The result, overall, is a new generation of American spenders who are headed back to the credit issues of the not-so-good old days. We’re carrying larger-than-acceptable monthly balances, and when we need to remember to pay a giant stack of monthly bills, occasionally other obligations get overlooked, especially when it comes to making a big dent in student loan debt.

While consumers have yet to run up the credit card balances they amassed in the last decade, credit card debt is still a major issue, and can very easily impact an individual’s credit rating. Total credit card debt is now $746 billion, and can turn into a major crisis for spenders, especially when they hit their limits or use too many cards at the same time.

What’s worse, credit card companies say they are seeing a gradual increase in credit card defaults and late payments, as spenders find themselves unable to pay those bills or even opt to skip out on payments at all – a one-way ticket to serious credit damage.

A sudden trend in late or missed payments, over-utilization, or spreading yourself too thin is definitely a way to perilously impact your credit score, and easy to do when you’ve begun spending without imagining the repercussions.

Taking Stock of Your Spending Spree

One of the first steps to addressing personal credit challenges is establishing a firm monthly budget, and understanding exactly what is owed and to whom. Having a firm budget is especially important before signing on for a five- (or six, or longer) year schedule of car payments, buying that new laptop, or paying for a dream vacation on a credit card.

Cardholders could also consider the APR interest rates charged on their cards and, if they have the credit credential to do so, simply ask for a lower interest rate, if not take advantage of a no-interest balance transfer opportunity with another card.

It’s also critical to keep an eye on the range of money owed to your various creditors. Utilization is a big factor in building a credit score, and using more than 30 percent of the available credit on any account can set off red flags for the credit bureaus.

Those who realize that they’ve spent themselves into a spot that they can’t get out of may also want to consider some professional help. Are you looking for credit repair services?

You can carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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How Can I Raise My Credit Score After Years of Inactivity?

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While some may spend much of their life involved in the world of credit – using credit cards for purchases, making payments on auto loans, or even coping with the challenges of student loan debt – a few manage to slip entirely under the credit radar.

If you are a recently widowed spouse, a stay-at-home dad or mom who’s been out of the workplace, or someone who pays cash for everything, it’s sometimes a shock to discover that your absence from the credit universe means your credit score may need some improvement.

Years of credit inactivity can mean low credit scores, which makes it difficult for you to qualify for a mortgage, a car loan, or even a rate on a much-needed new credit card. And this may have you searching for help rebuilding your credit.

Baby Steps

For those re-entering the credit world, the best advice is to take a slow and careful approach, which often involves using only one credit card. Credit bureaus, which monitor your credit use and history to determine your credit score, look for your ability to effectively handle credit and pay bills on time.

A new card provides you the opportunity to demonstrate that you can make positive credit decisions. And while opening a credit card may initially drop your score slightly – any “hard inquiries” into your credit record by a bank or department store card will initially impact your score – by establishing a track record of on-time payments and intelligent usage, you’ll be on your way to boosting your overall score.

Utilization is a major factor, making up more than 30 percent of your overall credit score. Using more than 30 percent of your available credit – not just on your new card, but of your entire credit resources as well – can be seen as a negative factor when credit agencies examine your creditworthiness.

Use Your Credit Card to Build Your Credit

So go slow. Use your card to buy groceries, pay for gas, or any of the day-to-day necessities you’d be purchasing anyway, and then pay the bill on time, every time.

Paying off the entire monthly balance may also prove to be a winning strategy for being reintroduced to credit. Carrying a balance of revolving debt will certainly demonstrate your credit activity, but for those looking for better results, paying off the monthly balance will be more beneficial.

Learn to use the card in a consistent fashion and, in time, the results will begin to show on your credit report. Don’t expect it to happen overnight – sometimes, six or more months of steady payments are what it takes to start showing positive increases. Work at them, however, and your credit rating can begin to blossom.

If you’d like some professional suggestions on the best ways to help improve your credit, we are available to provide those answers.

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Why the Average American’s Credit Score Increases with Age

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Some of life’s most sought-after items are those that can only be perfected by time. The best bottles of wine or whiskey require decades of aging, the most exquisite cheddars rest for years to achieve their flavors, and dry-aged beef simply melts in your mouth.

What’s more, the concept of “it gets better with age” is hardly limited to the pantry — it also extends to your finances. For instance, a well-aged savings bond can provide solid profits, and you can amass a very healthy portfolio with just a little compound interest — if you give it enough time.

Even your consumer credit score tends to improve with age. According to recent studies of the average credit score by age, the average American’s credit scores get better over time, with each generation having higher credit scores than the generations after it at any given point.

In fact, the studies found that those aged 60 or older are twice as likely to have a FICO credit score above 720 than those under the age of 40. And seniors are almost four times as likely to have a 720-plus score than those consumers who are 30 years or younger — the majority of whom have FICO scores of 620 or lower.

The Age of Your Accounts Impacts Your Score

When looking at the data, your first assumption might simply be that your age is one of the many pieces of information that FICO uses when calculating your credit score, and leave it at that. But you’d be wrong. Your age doesn’t actually have any direct impact on your credit score (which means your score won’t automatically improve just because you have a birthday).

That said, while your age doesn’t directly impact your credit score, the age of your credit accounts will have an important role in your credit score calculations. A long history of healthy credit behaviors can say a lot when it comes to proving to potential lenders that you are a creditworthy borrower, so FICO’s credit scoring models are going to factor it in.

In fact, when calculating your credit score, the length of your credit history will count for a full 15% of your total score. Furthermore, FICO isn’t just looking at how long ago you got your first credit card; the scoring model will look at both the age of your oldest credit account, as well as the average ages of all of your accounts.

And as far as FICO is concerned, the older your accounts, the better. But you won’t need to be eligible for AARP to score high marks for your average account age; the key is to start establishing good credit early in life. An average account age of six years is respectable, and an average age of nine years (or more) will net you the best results. So, an 18-year-old college freshman with a basic student credit card can be halfway to a solid credit history length by the time he or she reaches graduation.

Your Age Can Also Influence Other Factors

Some other aspects of your age may also influence your overall credit score, albeit in more nebulous ways — like the improved financial wisdom we all (hopefully) accrue with time and experience. Learning how to manage your finances will lead to a better payment history (35% of your FICO score) and, thus, higher credit scores.

Along the same lines, simply traversing the various stages of life will bring opportunities to improve your credit score that may not yet be possible for younger generations. There are five separate factors that go into a FICO score calculation, most of which are easier to influence as you, well, grow up.

For example, you’ll likely never make less money than when you first enter the workforce — and, nowadays, you’ll likely have a boatload of student loans to keep afloat. The career advancements that come from doing your time in the workforce — or, more specifically, the salary raises that typically accompany them — can help you pay down debt and improve the amounts you owe (30% of your FICO score).

Moreover, some credit score influences are not yet financial priorities for younger consumers. Some of life’s milestones can come with installment loans that can improve your overall credit mix (10% of your FICO score), like using an auto loan to purchase a pre-owned minivan that fits the whole family or getting a mortgage for a long-awaited retirement condo on the beach.

Establish Credit & Maintain a Clean Report Over Time for the Best Credit Scores

Regardless of what’s behind the correlation between age and the average credit score, the important thing to note when considering the studies’ findings is that averages are just that — averages. They are not all-encompassing, and should not define your financial efforts. Anyone can earn an excellent credit score, regardless of his or her age.

Of course, it’s not only the young who worry about their age impacting their ability to achieve excellent credit. Those who have weathered a few financial storms may actually be worried about being too old to improve their credit. But, just as you’re never too young to start building good credit, you’re never too old to find ways to improve your credit score.

For some consumers, working with an experienced credit repair company can help smooth the bumps in a rocky credit report, removing mistakes and unsubstantiated accounts. Be sure to choose a reputable company and research applicable fees before getting started. The best credit repair company for you will depend on your needs and your budget.

You’ll likely also need to pay down your current debt, as well as work on improving your payment history. The newest information on your credit report often carries the most weight and most negative marks will come off your credit report in seven years. For those who have experienced a bankruptcy or other major financial issue, credit cards for bad credit can help establish credit after a discharge so you can begin rebuilding your credit score.

In the end, the key to a good credit score is establishing credit, then maintaining that credit in good standing. With a little determination, a few smart financial decisions, and the power of time, anyone can achieve excellent credit.

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How Income Based Repayment and Student Loans Affect Credit Score of Seniors

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Today’s seniors are the Baby Boomers of yesterday – those born between 1945 and 1964 who were part of the post-World War II baby boom. In 2017, this group of people are between 53 to 72 years old and are either in the midst of their golden years or just approaching them. A staggering statistic affecting this group is soaring student loan debt. According to a report from the Government Accountability Office (GAO), over the last 10 years student loan debt in this age group has gone from $43 billion to $183 billion.

The Baby Boomers were a group who seemed to take out their student loans while in their 30s and 40s to go back to school during their mid-career years – to get a Master’s Degree or to switch careers and get a different degree, for instance. These student loans are now decades old and with the borrower juggling a family, house payment, and car payments, a lot of these student loans are going into default.

So not only is this group defaulting on their student loans, they could be falling behind on other loans which can negatively affect their FICO Score. FICO Score takes two different loan types into consideration when calculating your score – installment and revolving. According to myFICO, student loans are categorized as “installment loans” and credit cards are examples of “revolving loans.” Even though FICO Score weighs installment loan debt less heavily than revolving loan debt, making on-time student loan payments is still very important.

That’s because payment history is the biggest part of your FICO Score – 35 percent to be exact. What does that mean to seniors with student loan debt? Not making on-time payments may cause your credit score to decline and quite possibly force this loan into default. Almost 4 of 10 borrowers over the age of 65 are in default on their student loans – the largest of any age group.

The government’s response in trying to collect student loan debt is to garnish the borrowers Social Security benefits. As cited in the GAO report, 114,000 Americans have had their Social Security benefits reduced via garnishment for failure to pay off their student loan debt. This number is expected to rise as more baby boomers enter retirement with student loan debt. That means these people have less money each month to cover their bills – putting them at risk of late payments or missed payments on current debt. It is a domino effect when talking about how all of this will negatively affect one’s credit score and credit reports.

To address this grievous epidemic, Senator Elizabeth Warren (D-MA) and Senator Claire McCaskill (D-MO) have co-sponsored a bill to end Social Security garnishment for student loans. But until that happens, there is something you can do if you are approaching retirement and you still have outstanding student loans and you don’t want to hurt your 3 bureau credit reports.

Apply for a Federal Income Based Repayment Plan (IBR)

To help seniors get their credit back on track, there are government sponsored repayment plans they can apply for to help them rebuild their payment history and lower their student loan debt.

The Income Based Repayment Plan (IBR) is just one of four types of Income-Driven repayment plans offered by the U.S. Department of Education. To see all the plans, go to this document on the website. Income Based Repayment is a plan based on your income and caps your required monthly payment at an amount found to be affordable based on your income and family size. Generally, for seniors, the family size is either one or two people. Here are a few more details.

  • Your income must be low compared to your federal student loan debt
  • Your monthly payment cannot exceed 10 percent of your discretionary income
  • If you file a joint tax return, payment is based on combined income and loan debt
  • Outstanding balance is forgiven after 20 years of repayment
  • Go here to use the Repayment Estimator to estimate your monthly payment

After you have determined this plan may be the one for you, here are some steps to follow to apply for the Income Based Repayment plan.

  • Fill out the information on the repayment estimator to verify you qualify and how much your payment is likely to be.
  • Contact your lender or loan servicer and tell them you are on Social Security and you want to apply for an Income-Driven repayment plan.
  • If your Social Security payment is currently being garnished, you will need to tell them.
  • Obtain an application for the Income Based Repayment plan from your loan servicer – fill it out and send it in.
  • Review this Q & A document which addresses all the Income-Driven Repayment Plans.

If your Social Security is currently being garnished, it may take 30 to 60 days for the loan servicer to stop them. That is why is it best to file your application for Income Based Repayment before your Social Security is garnished.

In Summary

Staggering student loan debt is not just affecting younger Americans, it is also affecting our senior citizens. And, student loan debt can play a factor in determining your FICO Score. Late payments and loan default can cause the biggest credit score drop. Add to that a Social Security garnishment of up to 15 percent of a senior’s monthly check, and now you have less income to cover your monthly expenses. These garnishments will force those hovering just above the poverty line to fall below it, severely affecting their lifestyle and their credit.

While fixing this problem will require lawmakers to adjust Social Security’s garnishment provisions, that may take some time. In the interim, people who find themselves approaching retirement age, or those already retired, who have outstanding student loan debt, should see if an Income-Based Repayment Plan can help them arrange payments before garnishment begins. This will not only improve their credit score but it will help the person with a fixed income be able to adjust their monthly spending so they don’t fall behind on any other payments that could hurt their credit score.

If you are not where you’d like to be credit-wise, it may be time to consult with a professional and learn how to start repairing your credit here.   You can also ask us questions on our social media platforms like Facebook or leave us a tweet on Twitter.

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