Save Thousands of Dollars when you Get a Grip on Your Credit
By: Jim Katzaman - Get Out Of Debt
Tags: Money, Credit Cards, Identity, Fraud, Finance

Simply put, having good credit determines whether you’ll qualify for a loan. Depending on the interest rate of the loan you qualify for, it could mean the difference between hundreds and even thousands of dollars in savings.

Those are the facts from the global information services company Experian. “Follow the money” is a catchphrase popularized almost 50 years ago. In today’s world, a credit score could decide if you have any money to follow.

Experian brought together credit expert and personal finance blogger LaToya Irby and Rod Griffin, the company’s senior director of consumer education and advocacy, to talk about credit scores and how to improve them.

“A good score is one that gets you the credit you want at the rates you need from the lender you are working with,” Griffin said. “Credit scores are important because they reflect the risk of lending to you. Good scores save you money and open opportunities.

“Lenders decide what scores are ‘good’ for them,” he said. “A certain score with one might get the best terms but not with another. Good scores help with qualifying for a lease and lower security deposits for utilities and rent.”

For a score with a range between 300 to 850, a credit score of 700 or above is generally considered good, according to Experian. A score of 800 or above on the same range is considered to be excellent. Most credit scores fall between 600 and 750.

Graph courtesy of Experian

“A good credit score is generally above 670,” Irby said. “The cutoff can vary by creditor and lender and even scoring model.”

One example of how this applies to the daily world is a landlord screening for tenants most likely to make timely rent payments.

Avoid the Unexpected

Check your credit scores regularly because you don’t want surprises, especially unpleasant ones.

“That way you know where you stand and can catch and handle errors quickly,” Irby said. “Use free tools like Credit Karma, Credit Wise from Capital One and Credit Sesame. Lots of banks offer free FICO scores, too. Check your online account to see if it’s available for you.”

Experian added that checking your credit score regularly helps make sure there aren’t any problems that could make it difficult to get approved for a new loan or credit account. Checking a few months in advance can give you time to address anything that could be hurting your score.

“A score gives a sense of where you stand,” Griffin said. “More important, check your credit report often. It’s used to calculate the score. Take care of your credit report, and your scores will take care of themselves.

“The scores from the different reporting agencies should be close,” he said. “Don’t panic if they aren’t exactly the same, though. Be sure to get the risk factors that go with the score. The factors tell you what to work on to make the number better.”

Griffin noted that someone could get up to six different FICO scores through the Experian app. In fact, his scores range widely from 786 to 872.

“Carrying balances on credit cards generally don’t help your score,” Irby said. “In fact, high balances can hurt you. Keep your balance low. Below 30 percent of your credit limit is good, but high scorers are only using 5 percent of their credit or less.”

Benefits of Payment in Full

Experian explained that you do not need to carry a credit card balance from one month to another to get credit for your good payment history. Ideally, pay the balance in full each month to avoid paying interest and accumulating debt.

“The best thing you can do for credit scores is pay your credit card balance in full each month,” Griffin said.

How much credit is used also attracts attention.

“High use is when your balance is high compared to the credit limit,” Irby said. “It can cause your score to drop. The good news is that paying your balance down can raise your credit score quickly compared to late payments, which take time to recover from.

“Use is based on how much of each individual credit card’s limit you’re using as well as your overall use across credit cards,” she said “It factors into the ‘Level of Debt’ portion of your FICO score, which is 30 percent of your score.”

In Experian’s words, “Credit utilization measures the amount of available credit you’re using on your credit cards. It’s a ratio of your outstanding balance to your overall credit limit.”

Griffin cut to the chase: “High balances hurt scores. The lower the balances the better.

“Maxing out your credit cards is a huge sign of risk to lenders, second only to late payments,” he said. “Keep utilization low.”

The Friendly side of Plastic

There is good news related to credit cards.

“If you’re using a credit card to build your credit, keep your balance low and pay in full and on time each month,” Irby said. “No exceptions.

“If you can’t get approved for a traditional credit card, consider a secured card,” she said “Both the Capital One Secured MasterCard — low deposit — and Discover it Secured — for rewards — are great options.”

Experian suggests that to build credit with your credit card, make at least your minimum payment on time every month. Aim to keep use rate below 10 percent for the best credit scores.

“Make a small purchase each month,” Griffin said. “Pay in full right away. That shows positive activity in the account without taking on debt.”

Anywhere along using credit, the threat of identity theft lurks nearby.

“ID theft can hurt big time,” Irby said. “Monitor your credit often. There are several free tools you can use. AnnualCreditReport.com has weekly free credit reports from all three major bureaus through April 2021. Act quickly if you spot suspicious activity.

“If your ID is stolen, be prepared to get an ID theft affidavit and police report,” she said. “Keep the originals for yourself. Make copies to deal with any new accounts that come up in the future.”

Experian states if fraudsters have used your identity to open new accounts, their failure to pay can show up on your credit report and damage your credit score. You can improve your chances of avoiding identity theft and fraud by following simple guidelines.

Seek Help Promptly

“Account takeover fraud runs up your balances, leaving you with huge, unpaid debt,” Griffin said. “The law gives you protection if reported early. True name fraud can leave you with new debt that is not yours. High balances and no payments can kill scores.

“Checking your credit report often can help you spot signs of fraud early so you can take action,” he said. “We always recommend checking several months in advance of a big purchase so you have time to repair your accounts.”

If seeking an increase in credit limits, be cautious.

“A bigger credit limit can boost your score,” Irby said. “You can request a credit limit increase if it’s been a while since your last one. It might be smart to wait until after the pandemic because some issuers are cutting limits to mitigate risk.”

Denied credit limit increases might be due to an assortment of reasons.

To increase your credit limit on your credit card, Experian states that the first step is to ask your card issuer to raise it. Alternatively, you can apply for and open a new credit card.

“If you manage your credit well, you might not have to ask,” Griffin said. “Ideally, companies will raise your limits automatically.

“Don’t ask when you’ve maxed out your other cards so you can spend more,” he said. “That would be a bad time. It’s best if you’ve been responsible with the card, don’t have significant balances on others, and need the limit for something like a big trip that will require more charges temporarily.”

Use those Utilities

There is a way to get credit for making regular payments on time.

“Utilities and cell phone payments aren’t usually in your credit score, even though we all pay these faithfully each month,” Irby said. “Check out Experian Boost to get credit for those payments on your Experian credit report.”

Certain streaming service payments also can be included in your credit report to help increase your credit score through the Experian Boost permission-based tool.

The most basic strategy to improve your credit scores is to pay your bills on time.

“Catch up on late payments,” Griffin said. “Reduce credit card balances. Those are the two biggest issues for most people. Get the risk factors with a score. Use them to identify exactly what you need to work on in your report. Everyone is unique.

“Watch Netflix?” he said. “You can have those payments reported, too, using Experian Boost. Pay off any collection accounts to see an immediate score increase. Paid collections are now excluded from newest scores.”

While there are several credit scoring models with different score ranges, Experian states that 700 or higher is generally considered a good credit score, while 800 or higher is excellent. If your score isn’t quite in that range, there are ways to get it back in shape.

“Improve your credit score by paying on time, catch up on past due bills, pay bills down and dispute errors from your credit report.” Irby said.

Experian lists five strategies to help keep your credit scores healthy. These can be used in conjunction with other steps to take during an economic downturn.

“Be patient,” Griffin said. “There are no quick fixes. Pay on time, keep balances low, apply only when you need to. Boring is good.”

About The Author

Jim Katzaman is a manager at Largo Financial Services and worked in public affairs for the Air Force and federal government. You can connect with him on Twitter, Facebook and LinkedIn.

Disclaimer

This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.