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If you’re rebuilding your credit score after bankruptcy, the first step is to educate yourself about what affects your score, how you can boost it, and what happens if your score isn’t as good as it could be. When you want to buy a home or a car, your credit score is all-important but it also matters for your job hunt, and what you’ll pay for certain utilities and services. Here are nine things you must know about your credit report and credit score.
1 – The factors that determine your score
Five factors determine your credit score calculation. Knowing these means you know what’s hurting and helping your score and what you need to improve to boost your number. Payment history accounts for 35% of your score, and credit utilization accounts for 30%.
Utilization is the ratio of your credit balances versus your total credit lines. The average age of accounts contributes to 15% of your score and the mix of types of credit makes up roughly 10% of your credit score.
2 - Only a creditor can access your credit score
As a rule, only authorized people can get a look at your report or score. You can see your report and a version of your score if you request it. Potential creditors can access it, as can existing creditors, like credit card issuers, who occasionally re-check your credit to make you’re still a good risk.
Potential employers can see a limited version of your report, but only if you sign an authorization form. Some pre-screening programs seek lists of consumers that meet certain parameters to pre-qualify for offers, but you can opt out of this by going to optoutprescreen dot com.
3 - Your credit score may predict how long you’ll stay married
A study by the Federal Reserve revealed a very interesting trend. The study found that couples with closer credit score gaps have higher chances of staying together, while couples with wider credit score gaps have higher chances of separation.
4 - Credit scores are relatively new
It’s only been about 30 years since credit scores began. The FICO score came out in 1989. Before then, credit decisions came down to subjective judgments of character. Although Equifax has been around since 1899, tracking credit back then was difficult.
A credit score by Bill Fair and Earl Isaac (who later developed FICO) was first developed in the 50s, but it didn’t catch on. Later, with the advent of the Fair Credit Reporting Act, better data collection was established and the revised score took hold.
5 - FICO isn’t the only score
While FICO was once the only credit score on the block, now there are lots of credit scores by different firms. Vantage is a newer score developed by the credit bureaus. There’s also the CE Score and Credit Optics Score. There are also different versions of the scores – some specifically designed for mortgage or auto lending. In all, you could have 100 different scores calculated off of your credit report.
6 - Late payments will ruin your score
The old saying of “better late than never” is true in many aspects of life but running late on a bill that reports to the credit bureaus means your score will be hard hit. You might think missing one payment is no biggie, but it’s the first missed payment that hits your score the hardest. To keep your score as good it can be, never run late or skip payments.
7 - Closing credit cards can tank your credit score
The age of your accounts is an important factor in your credit score. When you close older accounts, your average age of credit may drop, and so might your credit score. Think carefully before you close an older account. It may be wiser to keep them open and use them sparingly. Even if it has high interest, if you pay it off in full when you use it, you won’t pay any fees.
If an older account has a high annual fee, closing it makes sense, but check your average age and delay closing until the effect is minimal. Simply add up the age of all your credit card accounts and divide by the number of cards to see the average age. It’s a quick and easy calculation.
8 – Joint accounts impact your credit
When two people jointly secure credit, the account activity is reflected on the credit reports of both parties. Credit cards are less common as joint credit these days, but auto loans often have co-signers and a mortgage might have two parties. Missing payments, paying late, or defaulting will wreak havoc on the credit report of both signers.
9 - A poor credit score costs you money
An unhealthy credit score affects you in more ways than being turned down for a car loan or mortgage. It also drives costs for everyday expenses like auto and homeowners insurance and utilities. Many utility providers run credit checks and your score determines the rate you pay for natural gas and other services. Even if you’re a safe driver, a lower score means you’ll pay more to insure your auto.
If you’re rebuilding your credit after bankruptcy, education is key. Check out Credit Score Keys for the best approach to re-establishing your credit and boosting your score to make the most of your fresh financial start after bankruptcy.
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