This is definitely a matter of “what you DON’T know CAN hurt you.” Money matters and conversations about credit and debt can be embarrassing if you feel like you have made mistakes in the past and have not yet forgiven yourself for not knowing what you didn’t know.
I like the idea that when you know better, you can do better. So take this opportunity to get some good information and put it to use to improve yourself, and share it with someone you care about and perhaps help them avoid a pitfall too.
So here is a little real talk about credit, credit scores and where they come from.
1. Who is tracking your credit? There are 3 national credit bureaus – Experian, Equifax and TransUnion
2. Where does the information come from? They compile information received from banks and financial institutions, who send data about any debt or bill that you may have (car loans, credit cards, mortgages, medical bills, student loans, delinquent taxes, and even outstanding balances for that apartment you and your buddies from college were renting together and didn’t clear up). And every time you submit an application for new credit, whether approved or not, it is affects your credit score and is added to your file.
3. Who uses this information? You would be surprised. Utility companies, cell phone providers, landlords, insurance companies and even some potential employers are reviewing your credit history to determine your suitability and financial stability.
4. How can you find out what they are saying about you? Good question. Any time you apply for credit if you are declined, you will receive a letter in writing from the company notifying you what information was used to make their credit decision and how to request a copy of the credit reporting information obtained so that you can review it and dispute anything that is invalid. Also you have the right to get a FREE copy of your credit report from each of the three credit bureaus annually so that you can see the information and request any corrections, and make sure that no one else is using your identity illegally. Per the FTC (Federal Trade Commission) the ONLY authorized source for your free report is AnnualCreditReport.com. DONT BE FOOLED by copycat websites trying to get your personal data and your money.
5. What is a FICO score? FICO is an abbreviation used to describe the measurement of your credit score. The scoring ranges from about 301 to 850. The way your FICO score is calculated is to take your score from each of the 3 agencies (Experian, Equifax and TransUnion) drop the highest score, drop the lowest score and select the one in the middle, and that is considered your FICO score. It is NOT an average of all 3.
6. What are 3 factors that contribute to my credit score? The length of time that you have had the lines of credit open. Your payment history. And the amount of the credit line used compared to the total amount available.
7. How much of my available credit should I use? Ideally, NONE! It’s better to owe no one anything. But if you are using them, then the best way is to pay them in full monthly. The 2nd best use, if you are in a position where you cannot pay off in full, then use the Rule of ⅓. The Rule of ⅓ means that you only use ⅓ of your available line of credit. So if your limit on your card is $3000, do NOT carry a balance of more than ⅓ or $1000. This demonstrates to your creditors that you are not maxing out every penny of available credit and you are consistent on making your payments.
Share this information on your Facebook page, forward it to your friends and family – WE NEED MORE WORD! WE NEED MORE VICTORY!
Your Financial Stewardship Champion