Credit Score

I get a lot of questions of credit score. Credit score is a number that you are continuously reminded of, especially now that your bank probably offers credit score updates. No worries, it’s not as difficult to understand as it may seem but there is a lot of information out there.

1. What affects your credit score?
   1. Payment history
      1. It is very important, about 35% of your score is impacted by your payment history.
      2. Make sure that you make your payments on time and if you can pay more than your minimum payment.

• The key is to have a bigger credit limit than you use. i.e if your credit limit is 1000, you don’t want to use more than 300. Ideally, you want it to be much lower, as low as possible actually. You want to seem like a good candidate to lend money, hence the high credit limit but not usage.

1. Amounts owed 30%
2. Length of credit history 15%
3. New credit 10%
4. Types of credit used 10%

2. To have a good credit score, you must avoid: late payments and negative marks on your account.
   1. Late payments
      1. If your payment is due on the first of every month, pay it then or even before, never after
      2. If the time you get paid is not the same as when your payments are due, make necessary adjustments.
   2. Negative marks: debt collections, foreclosures, judgments, tax liens, bankruptcy, charge-offs and repossessions.
      1. Lets say you had a bad accident, which caused you to end up in the hospital. Now you have all these unforeseen bills and have no way of paying them
      2. While you may have been responsible up until that point, something unexpected snuck up on you.

• You’re left with unpaid medical bills
  1. Most unpaid negative marks are removed from your account after 7 years, such as this medical bill, unpaid bankruptcies and tax liens may take up to 10 years
  2. Now you may be thinking, 7 years isn’t so bad, I can wait it out
     1. Should you wait 7 years for it to go away?
        1. No, here’s why
           1. If, for example, you have an unpaid bill. In this case, the hospital, will attempt to collect their money. After continuous attempts, they will sell your bill to a debt collector. Now you’re stuck owing the debt collector.
           2. If it is at all possible attempt to call the hospital and negotiate a flat rate you can pay or get on a payment plan!!! The hospital would rather get their money from you then the debt collector and they are more willing to set up a payment plan.
           3. Now, if you have ever been in this position, you know its not fun. These debt collectors will do their very best to get their money from you. They will continue to call and until they get it. You may be able to negotiate with the debt collectors for less than you owe. While, debt collectors will take less money, they will usually require you pay in full and it will be a mark on your credit score.
        2. When time has passed and the creditors have not received their payment, the negative marks will start.
        3. Once the negative mark appears on your score, it will start to bring it down. The longer you go without payment the lower your score gets.
        4. None of the positive things you’re doing will matter if you still have this preventing your score from not only going up but going down.
     2. Why does any of this information actually matter?
        1. Most of us don’t have the capital (money) needed to do the things we want, even if you do, you may want to keep your cash liquid.
           1. You may want to buy a house or need a business loan to start your own company.
           2. All lenders will have access to your score, they actually will use it has one of the main determinants of where or not to lend you the money.

• Any negative marks will be seen by all the lenders who come across your application, it will show that you have been irresponsible with your finances, which would not make you an ideal candidate for any loan.

1. Remember, consistently checking your credit score will also impact your score negatively.
2. Even if you go to a risky lender, and they approve you, they will charge you so much interest that a lot of the time, it isn’t worth it.
3. If you were lending a significant amount of money to a friend, I am sure you would want to make sure they paid you back, same with lenders.