Play the Credit Score Game
As a Senior Loan Officer, with Cason Home Loans in Michigan, I am asked frequently about credit scores and how they can improve. Whether you have below average credit or very good credit you can benefit when you know how to Play the Credit Score Game.
How can I build my credit if I don’t currently have a score?
I have run across this home loan question many times through the years. On occasion I speak with a potential home buyer that does not have bad credit they just don’t have any credit. This might be the person who pays cash for everything. The problem with paying cash for everything is that you don’t get credit for making the purchase. You are essentially “off the grid” when it comes to credit. So how can you get yourself “on the grid?” Your first step might need to be to get a secured credit card.
You would do this by going to your bank or credit union and asking to sign up for a secured credit card. What makes the card “secured” is that you will give them money, perhaps $300, and you would then be given a credit card with a $300 limit. Now you would use the card just like a regular credit card, for example if you were to be stopping for gas you would put the cost of the gas on your new secured credit card. Then when your payment is due you will make the payment (on time) and you will now receive “credit” for the purchase. The reason the secured credit card is usually the first step to establishing credit is because it can be difficult to get someone to give you a credit card without a credit score.
You may want to get more than one secured card so that you can have several things reporting each month to the credit bureaus to make your score go up even faster. It is a good idea to have at least 3 or 4 items that will will report to the credit bureaus each month. Here are some examples of things that report to the credit bureaus; revolving credit account (credit cards), installment loans, student loans, car loans. Sometimes people are surprised to hear but these are examples of things that do not report to the credit bureaus; car insurance, cell phone bill, cable bill, utilities, internet, netflix. The only time these items will report is if you do not pay them and they become a collection (hint: this is not good).
What is my credit score based on?
There are 3 credit bureaus Equifax, Transunion and Experian. They report each month what your activity has been from the previous month and they score you according to how you have done. If you think of your credit score as playing a game then we should know the rules of the game. Your credit score is primarily based upon your propensity to pay or not pay for your debts.
So the #1 rule of the game is to make all of your payments ON TIME, no exceptions. The penalty for not following rule #1 is that your score will go down and go down in a hurry. I have personally seen peoples credit score go down by more than 100 points from 1 thirty day late payment. The only way to recover from the mistake of breaking rule #1 is time…and not doing it again.
Another little tip when it comes to your credit score is to keep the balance on your credit cards below 30% of the available limit of the card. For example if you have a credit card with a limit of $1,000 then you should keep the balance at the end of the month below $300. So rule #2 of the game is, do not “max out” your credit cards. Be responsible with your credit cards, do not spend money that you do not have. You’re playing the game to get credit for a purchase not to go in debt that will cause you stress. For example lets say you are at your favorite Best Buy Store…
(I have several)
One is on Miller Rd in Flint MI Flint Best Buy
another is in Auburn Hills Auburn Hills Best Buy
and another is in Saginaw Saginaw Best Buy
…you see a TV that you would like to purchase. In one hand you have the “cash” to buy the TV and in the other you have your Best Buy Credit card, what should you do?? Well if you want to “get credit” for the purchase you should buy the TV with the credit card in your one hand and pay the credit card payment with the cash in the other. You just built your credit without spending money you did not have, and you can feel really good about that!!
Is there a website I can use to check my credit report, for free?
Don’t be fooled by look-alikes.
Lots of sites promise credit reports for free. Annualcreditreport.com is the only official site explicitly directed by Federal law to provide them. Under Federal law, you are entitled to receive one free copy of your credit report from each credit reporting company every 12 months. Even if you have excellent credit it is a good idea to check what is reporting once a year (like checking the battery in your smoke detector) to make sure everything on your report is accurate.
What is a credit score?
Information contained below is credited to Annualcreditreport.com
A credit score is the result of a mathematical formula that uses the information in your credit file, such as how well you have paid your bills in the past, to calculate how likely you are to pay your bills in the future.
The credit scores you get from different companies may not be the same. There are a number of reasons for that:
- Each company uses its own formulas for calculating credit scores. The differences in the formulas may lead to differences in your credit scores.
- Companies may produce scores that give results on different scales.
- Creditors or lender reports don’t always report to every credit reporting company. This means that information that the credit reporting companies plug into their formulas may differ from credit reporting company to credit reporting company.
Most people’s different credit scores are very close, despite that the different credit reporting companies calculate your scores using different formulas, and sometimes from different information. If one of your three credit scores is very different from the others, you may want to research why.
Your credit score estimates how likely you are to pay back loans or services that a lender may give you during the next two to three years. People with higher credit scores may be more likely to pay back their debts. People with lower credit scores may be less likely to pay their debts. Lenders take bigger risks when they lend money or provide services to people with low credit scores.
Credit reporting companies can show your credit report and/or credit score to other companies who have a lawful reason to ask for it. These may include potential lenders. Lenders use credit scores to help decide how risky it will be to lend you money or provide you a service. Potential employers may use credit scores to help evaluate how dependable you are.
If this information has been beneficial to you feel free to contact me and don’t forget to download my free