Last year, I was converting old VHS tapes to DVD. One of the tapes was of my husband playing
high school basketball. It was a game
where he was a scoring machine. I didn’t
know him in high school, so it was fun to watch. While I was concentrating on the game, he
walked in and said, “I made 30 points that night, and that was before the
three-point line.” Many people (who are
old enough to know) would agree that the three-point line changed the
game. With sports, knowing how many
points you earn and under what conditions is important. The same is true with your credit score.
Credit scores are usually expressed in numbers ranging from
300-850. These scores are what lenders
use to determine how big of a risk you are.
But it is no longer just lenders who use the scores. Some insurance companies, phone companies and
employers also use the scores to determine their risk in doing business with
you. Do you know your credit score? Do you know how it is tallied? Did you know the credit game had a score board?
Much of your credit score is determined on your past
behaviors and experiences. Your score is
based on information in your
credit
report. In the starting lineup are
your current balances and limits (or a ratio of the two), how many accounts you
have, and your payment behavior (whether you pay your bills on time or
not). There are a variety of factors
that may be considered and many versions of a credit-scoring models. The scoring systems are supposed to help
predict who is most likely to repay a debt.
You can get a credit report free at annualcreditreport.com, but getting
your credit score involve additional fees. Some credit card companies are now
including a credit score with their billing.
You should know your credit score and which direction it is
trending over time. Many people get
confused between a credit report and a credit score. If you were playing basketball, for instance,
the credit report would be how you played the game – assists, steals, rebounds,
hustle and so forth. Your score, or how
many points you had, should reflect how well you played versus your opponents. Credit scores give a numeric assignment to
how well you are doing on the financial court compared to others.
Your 3-digit credit score can drop if you make a credit
payment up to thirty days late. A
substantial drop in a credit score could affect interest rates offered to you
from mortgages to credit cards. A different interest rate on a mortgage can add
up to thousands of dollars over the course of the loan. Late payments are just one of the many
factors. Your score can be affected by
current transactions on a credit card. A
lender recently explained why my husband’s credit score was higher than
mine. At the point in time when my
credit was reviewed, I had higher balances on my credit cards. The company scoring me could only see the
current charges, but not the fact that all balances were paid in full each
month. Of course, my husband was pleased
with outscoring me.
If you are trying to improve your credit score, you might
look at some game-change strategies. Pay
your bills on time. Timeliness and
consistency account from more than 30 percent of your score. Be careful how many times you apply for
credit, especially the plastic kind.
Multiple inquiries to your credit report, such as those made by credit
card companies or other lenders, can lower your score. However, you definitely should check your own
credit report, because there is no penalty on the score for self-inquiry. If there are errors, you need to cry foul and
get them fixed.
If you have credit cards, you might think twice before
applying for more, or before cancelling any of them. Applying for new credit cards lowers the
average length of time you have had credit established. If I have three credit cards that I’ve had
for five years and I get a fourth one that I’ve only had for a few months, that
lowers my average. If I cancel a credit
card that had a $5,000 limit, I’ve just changed my potential “debt to limit”
ratio. It really is a numbers game. Having a variety of credit can be important
to show you can balance multiple credit lines at the same time. For instance, an auto loan, home loan and
credit card that are all paid promptly each month can prove your ability to
manage your finances.
No matter how you play the game, it is important for you to
know your score. It is a little like a
team watching a game tape or reviewing stats.
It’s about improving how you play the game, and eventually that gets
reflected on the score board.
For more game strategies:
