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When Working to Improve Your Credit Score, Utilization Is Critical

Rachel — Thu, 03 Aug 2017 07:06:54 +0000

When Working to Improve Your Credit Score, Utilization Is Critical Rachel Thu, 08/03/2017 - 03:06

What percent of your credit are you using?
Image Source: Pixabay.com

Once you ditch your debt using bankruptcy, the next step is rebuilding your credit. Getting credit cards and using them wisely is key to re-establishing your credit as fast as possible. The downside to being so deep in debt that you turn to bankruptcy is that you might be gun shy about credit cards. In most bankruptcy cases, excessive spending isn’t the cause – it’s a symptom. The simple truth is, credit cards are the fastest route to rebuilding your credit score, but must be used strategically, and credit card utilization is key.

What Is Utilization?

The word utilization means usage. Regarding credit cards, utilization is calculated as a ratio of credit being used to credit lines. The technical term is “credit utilization ratio, ” but in discussing credit cards and scores, it’s commonly called just utilization. For FICO and Vantage score calculation purposes, utilization is calculated and considered across all your revolving credit lines. Here’s a look at how to figure out your utilization.

For example, let’s say you have five credit cards. Two of the cards have $500 credit limits because they’re starter cards that you got when you began rebuilding your credit. Then let’s suppose you have another that’s $800, another that’s $1,000, and your highest limit is $2,500 because you built up your score using the other cards and finally got a higher limit on your most recent card. Your total credit lines equal $5,300 (500 + 500 + 800 + 1,000 + 2,500).

How Much Is Your Utilization?

Given the assumption of total credit lines of $5,300, let’s then say you’re carrying total debt of $2,000 spread across your cards. To figure out your utilization, use the ratio of 2,000/5,300. In this scenario, you’re using 37.7% of your available credit. This is enough to lower your FICO score. Ideally, you should never go over 25-30% of your total credit line. In truth, the lower your utilization, the better. However, you should still use your cards so they have activity.

Utilization is a double-edged sword. If you don’t use your credit cards, card issuers have no incentive to allow you to keep the accounts open or to reward you with credit line increases which help raise your score. On the flip side, if you over use your credit cards, you can find yourself in the predicament of excess utilization and lower your score.

How Credit Line Increses Help Utilization

Using credit cards to boost your credit score means using them responsibly but regularly enough to keep your card issuers satisfied so they will give you credit line increases. One strategy is to use your cards to pay for items you normally pay cash for – and then pay off the cards before any interest can accrue. That means you’re using the cards but not racking up interest charges so it’s the same to your personal bottom line as paying cash.

For instance, if you pay your monthly cell, electric, water, gas, and other standard bills using your credit card, that gives you spending history without using your cards for things you don’t need or can’t afford. Usage doesn’t have to equal utilization. By paying your cards off in full each month, your utilization can be zero which is good. By having activity on your cards, issuers are likelier to offer credit line increases. This means if you ever do need to carry a balance, your utilization can remain low.

Given the scenario above with $5,300 in credit lines and a $2,000 balance, that means 37.7% utilization, which is excessive and can harm your FICO and Vantage scores. Now imagine you were using your card regularly and responsibly and all of your card issuers rewarded you with double the credit lines. That means you could have $10,600 in credit and that same $2,000 balance now represents just 18.8% utilization. That’s a buffer that can help protect your score.

To find out more about improving your credit score after bankruptcy, contact Credit Score Keys today for a free consultation. Call (888) 659-3226 to set up an appointment at your convenience.

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The Benefits of Aging – Most Older Americans Have Higher Credit Scores

Rachel — Fri, 28 Jul 2017 07:13:48 +0000

The Benefits of Aging – Most Older Americans Have Higher Credit Scores Rachel Fri, 07/28/2017 - 03:13

Older Americans usually have higher credit scores
Image Source: Pixabay.com

When you think about getting older, you might focus on the negatives. You may not be able to jog as far as you once could, and you’ll notice a few smile lines and some gray hairs. However, lots of things also get better with age including fine wine, gourmet cheese – and your credit score. If you’ve been careful with your finances, you might have a healthy 401(k) to help with your finances or a well-deserved pension coming your way. Credit scores, in particular, tend to improve as we age.

Older consumers have higher credit scores than younger

A recent credit score study by Value Penguin showed the average Vantage credit score is 673 while the average FICO score is 695, across all age demographics. But if you drill down deeper into the numbers, you see many differences emerge based on characteristics – one of them being the age of the consumer. Across five age groups, there is a noticeable increase in credit scores the older we get.

Generation Z

For the youngest generation of kids, just out of college and getting started, the average credit score is lower than average, at just 631 for FICO. This age group was born in 1996 or later and tend to have one credit card, on average, and carry a little more than $1500 as a credit card balance. This generation tends to have a lower score but also much less debt than later generations.

Generation Y

This generation, born between 1995 and 1982, has double the debt of Gen Y and double the number of credit cards. Their credit score is just a few points higher than Gen Z. This group carries not only double the overall debt compared to the next youngest demo but also double the credit card debt and more than double the retail debt from sources like store-issued credit cards.

Generation X

Gen X’ers are born between 1967 and 1981 and have a much better credit score, averaging around 655 under the FICO calculation. These are consumers that are old enough to be parents and make up the bulk of the US workforce. This group carries the greatest amount of retail debt at almost $1400 and nearly the highest overall non-mortgage and auto debt at more than $42k.

Baby Boomers

Boomers were born between 1966 and 1947 and are on the cusp of retirement, although many are working longer than their parents did because of more restrictive (or non-existent) pension offers and greater debt. Baby Boomers have the greatest overall debt at almost $43k and carry the highest credit card balances at close to $7k while having much higher credit scores at around 700 in FICO terms.

Silent Generation

This generation was born between 1946 and 1925 and represents great-grandparents and retirees. Most are out of the workforce but benefits from the highest average credit score at an average of 730 on the FICO scale. They carry fewer credit cards than Boomers and half the credit card debt. Their overall debt is closer to Gen Y, and they tend to carry much less in retail debt.

Why do credit scores get better as we age?

One of the factors in the FICO calculation is the average age of credit. Older Americans often have credit card accounts they’ve had open for decades which can boost their score. The older you are, the more likely you are to have a diverse mix of credit including a mortgage, auto loan, and credit cards. Having an array of types of credit can also boost your score.

If you’re looking at retirement, but also stuck with overwhelming debt, bankruptcy might help you move into your golden years with less debt weighing you down. After bankruptcy, rebuilding your credit is the next step. To find out more about improving your credit after bankruptcy, talk to Credit Score Keys. Call 919-495-2365 today for a free consultation.

Resources:

Value Penguin study

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Credit Scores Are Better Than Ever – Why It’s the Perfect Time to Improve Your FICO Calculation

Rachel — Thu, 20 Jul 2017 07:10:59 +0000

Credit Scores Are Better Than Ever – Why It’s the Perfect Time to Improve Your FICO Calculation Rachel Thu, 07/20/2017 - 03:10

Now is the time to work on your credit
Image Source: Flickr User Investment Zen

Credit scores are, on average, higher than they have ever been. If you’re coming out of bankruptcy or other tough financial circumstance, now is a good time to work on improving your credit score. Here’s a look at why credit scores are on the rise and what you can do to improve yours.

Recent Change to How Certain Debts Are Reported

This month, a change went into effect on how public records, judgments, and tax liens are reported to the three credit bureaus – Experian, TransUnion, and Equifax. Many consumers saw an effortless boost to their credit score because the three reporting bureaus cleared some items in question off their reports. In the past, creditors, debt collectors, and tax agencies were able to report certain negative items onto consumer credit reports with inaccurate, missing, or minimal information. Once this sloppy practice was disallowed, millions of consumers saw a boost to their credit score.

Information on Your Credit and How Scores are Calculated Is Everywhere

For a long time, it was a hassle to get a look at your credit report or to see the credit score calculated from the reported information. Today, though, there is a wide array of resources to help you get educated on the algorithms used to calculate scores and to see what’s on your credit report, and how to clean it up where possible. Free credit score services proliferate, so it’s not costly to get the information you need to work on your credit score. With easy and helpful info at hand, consumers have been able to get their hands dirty and work to improve their FICO score.

Negative Items Are Falling Off Daily

The most recent recession crashed home values in 2008 and saw a spike in foreclosures that peaked in 2010. As of this year, many of these negative items from the worst financial crash in recent history will fall off your credit report if you had collections actions and a foreclosure in 2010 or prior. After seven years of inactivity or account closure, items come off your credit score. However, you shouldn’t trust that this will happen organically. Educate yourself on when items should come off and check to see that they do. Seven years from the date of your last payment or use of a credit line is the threshold.

Comparison Credit Shopping Is Now Easier

When you’re shopping for an auto loan, mortgage or credit cards, you might apply to several different creditors, and if each runs a hard pull, this can lower your credit score. Ironically, lowering your credit score by applying for credit can then make you less likely to get preferable interest rates. Increasingly, many lenders allow a soft pull rather than a hard pull during the evaluation process. By getting a peek at your credit profile, creditors can let you know if you’re likely to be approved and, if you are, what your interest rate will be. This can protect your credit rating while getting the information you need.

It’s Never Been Easier to Improve Your Credit Score

If you’re coming out of North Carolina bankruptcy and looking to improve your FICO score, the time has never been better. There is a lot of information available to help you understand your credit report, learn which information on your report more heavily impacts your credit score calculation and see how to strategically improve your score month after month until you have the credit score you need to meet your financial goals. Good credit doesn’t just happen – it’s something you must pursue.

To find out more about increasing your credit score after bankruptcy, contact Credit Score Keys.

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When Paying Debt Can Hurt Your Credit Score – And Why

Rachel — Thu, 13 Jul 2017 07:08:30 +0000

When Paying Debt Can Hurt Your Credit Score – And Why Rachel Thu, 07/13/2017 - 03:08

When paying debt can hurt your credit score
Image Source: Pixabay.com

There are lots of reasons to improve your credit score. If you want to buy a new car or get a home loan or refinance your existing mortgage, you’ll get a preferable interest rate with a higher credit score. If you’re hoping for a new job that requires good credit or a security clearance, that’s another reason to better your score. But one thing you might not know is that, in some cases, paying down debt can hurt your credit score. Here’s why.

Paying Off an Installment Loan Can Drop Your Credit Score

Many factors play a role in your credit score calculation. One of them is types of credit. Suppose you have one installment loan, such as a car loan, and the rest of your accounts are credit cards. Paying off your installment loan changes your mix of credit accounts to less diverse, and this can drop your score a bit.

Also, an installment loan benefits your credit less over time which may sound strange. However, it offers a greater benefit earlier in the life of the loan, and your score can drop slightly when you pay it off because it’s no longer actively factoring into your credit score on a monthly basis as a positive and open credit account because it closes once you’re done.

What this means is that if it won’t affect your budget or do other adverse damage, paying off an installment loan early may not be a good idea. If you will see significant savings by paying it off early, that makes sense. But if it’s a wash on your finances and there’s nothing to be gained from paying it off sooner, it may benefit your score to keep paying as planned and not accelerate payoff.

Paying Off a Collection Item Can Worsen Your Score

If you have a collection item on your credit report, you might hope that if you pay off the item, the debt collection firm will remove it as a negative item. However, a debt collector is under no obligation to remove an item from your credit report. Instead, after you pay it off, all they legally must do is report that it’s at zero balance due.

Although it seems like paying off the debt should raise your score, in fact, it could drop it. That’s because activity on a collection account can be interpreted by the scoring algorithm as a bad thing. The smarter approach is to negotiate with the original creditor if you can. For instance, if it’s a VISA account, talk to the card issuer and ask if you can pay them.

If you pay off the original creditor, the debt collector has no right to report to the credit bureaus. If you must work with the debt collection firm, negotiate a payoff that includes them removing the item from your credit score. You should ask for the agreement in writing before you pay them and record conversations with the firm.

North Carolina is a “one party consent” state, meaning you can record your personal phone calls without the consent of the other party. Once you pay, follow up to ensure they remove the item from your credit report as promised. But without an agreement and assurance first, the collection agency is not obligated to remove the item even though you paid.

Paying Off an Older Item Close to Aging Off of Your Report

It’s important to know the delinquency dates of your debt in collections so you can avoid making a big mistake by paying an older item just before its status is set to change. The first date to know is the statute of limitations. In North Carolina, most debt has a three-year statute. What this means is that from the date you stop paying the debt, the legal enforceability expires in three years.

For instance, if you have a VISA card and stopped using the card and stopped paying it in January 2014, that is when the statute of limitations clock started ticking. It’s from the date of last activity which means a payment by you or a charge by you on the card. In January 2017, if you didn’t use the card again or make any further payment, the statute of limitations expires.

That means the card issuer or a collection agency they sold the debt to cannot sue you after that three years. They can still ask you to pay, but it’s voluntary. The problem is that if you decide to pay the debt, it can restart the statute. The second date to know is when it drops off your credit report. That comes seven years after the last activity.

If the creditor can convince you to pay them even $5, it’s a trick to get the statute and credit reporting limits to start over again. So, before you pay any old debt, educate yourself on the ticking time limits for legal enforceability and credit reporting or else you could damage your credit score for years to come with an ill-timed mistake.

If you’re rebuilding your credit score after bankruptcy, Credit Score Keys is here to help. Call us at 919-495-2365 today for a free consultation.

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What You Must Know About Credit Utilization

Rachel — Thu, 15 Jun 2017 07:00:34 +0000

What You Must Know About Credit Utilization Rachel Thu, 06/15/2017 - 03:00

Credit cards can help or hurt your credit
Image Source: Flickr User CafeCredit.com

You know the old saying, use it or lose it? To some extent, that’s true with credit utilization and credit cards, but you can also lose it if you use it too much. Card issuers won’t like it if they approve you for a credit card and you never use it. Likewise, card issuers won’t like it if they send you a credit card and you max it out and then don’t make the payments. Somewhere in the middle is the sweet spot of credit utilization and keeping yourself out of unaffordable debt. Here’s what you should know.

What Is Credit Utilization and Why Is It So Important?

Credit utilization is the second greatest factor that drives your credit score. Payment history carries the most weight because it counts for 35% of your score. But utilization is a close second at 30% of your score. But what is credit utilization, why is it so important and how can you use credit wisely to leverage this factor for a better credit score?

What Is Credit Utilization?

Credit utilization is a ratio of the total credit you have available versus how much of it you’re using. For purposes of simplification, let’s say you have one credit card with a $3,000 total line of credit. If you charge $2,000, your using two-thirds of your available credit which is 66% percent. That’s way too high, and even if you make the payments on the card account on time, your credit score will suffer until you drop down to a preferable level.

Why Is Credit Utilization So Important?

If you’re tapping into a lot of your credit line, the card issuer might assume you’re having problems managing your money and are over-extending yourself by over-spending and they might lose out if you can’t afford to pay your debt. Card issuers prefer to see you use your credit cards regularly, pay a good bit of the balance off each month and never run late on a payment or give them cause for concern about your creditworthiness. It’s a measure of your ability to use credit wisely.

Should You Just Avoid Using Your Credit Cards?

Things can get tricky with credit utilization. The way to keep your utilization low is to pay off your cards in full each month or as close to full as you can. However, simply avoiding using your cards to keep your utilization low is not the best answer in most cases. Why? Card issuers want you to use your cards. If your accounts sit inactive, they will close them, and that can damage your credit score.

Plus, if you use your cards regularly and pay off responsibly, you’ll get increased lines of credit which can keep your utilization lower if you ever do have to carry a balance. The ideal sweet spot is for you to have lots of available lines of credit that you don’t tap with as little of a balance carried over each month as possible – while still utilizing your credit cards to keep the issuers happy with you.

What Is a Good Level of Credit Utilization?

Some websites will tell you that as long as you’re under 30% utilization, you’re fine. However, both FICO and Vantage Score advise you to keep utilization under 20%. Also, there are two ways to look at utilization. First, is on individual cards and second is overall. For instance, if you have that $3k credit limit from the example above and a $2k balance, that card’s utilization is at 66% which is too high. If you have two more credit cards with healthy credit lines, so you have a total available credit of $10k, but you only have that $2k balance, your overall utilization is 20%. The latter number is important but maxing out even one card is not a good idea because that card issuer might cut your credit limit.

Because you need to use your cards to keep the card issuers pleased and offering ongoing credit limit rises, one approach to consider is using credit cards for things you’d pay anyway, then pay off in full on your payday. For instance, if you use a card for your monthly Netflix, it gives activity without driving a balance. You can do the same for utilities or your cell bill. That allows you to use your cards responsibly without getting in over your head.

To find out more about using credit responsibly to rebuild your credit score after bankruptcy, contact Credit Score Keys. Call 919-495-2365 for a free consultation.

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Getting a Car After Bankruptcy – Lease or Buy – And What Credit Score Do You Need?

Rachel — Thu, 08 Jun 2017 07:55:51 +0000

Getting a Car After Bankruptcy – Lease or Buy – And What Credit Score Do You Need? Rachel Thu, 06/08/2017 - 03:55

You can buy a car after bankruptcy
Image Source: StockSnap.io

One of the primary concerns for many bankruptcy filers is what happens after their discharge. They want to know what options they will have, whether they can get credit again, how soon they can get credit, and whether they can buy a house or car. When it comes to cars, your options are leasing, buying outright, or financing a purchase. Here’s a look at how bankruptcy and credit scores affect your vehicle choices.

Life After Bankruptcy – Better Than You Expect

When most people file bankruptcy, they are stressed about finances and worried their life is ruined. In fact, filing bankruptcy resets you financially for most unsecured debt. Chapter 7 bankruptcy discharges credit card debt, medical bills, non-collateralized commercial loans, and some older income taxes. Chapter 13 works a little differently because you dig out of debt over time.

The quick answers about getting credit after bankruptcy are contingent on the type of bankruptcy you chose and the effort you put into rebuilding your credit after your discharge. Yes, you can get credit again. Yes, you can get credit fairly soon after your bankruptcy discharge. And, yes, you can buy a home and a car. Chapter 7 is the fastest option and can help your credit score rebound faster.

In fact, studies by the Federal Reserve showed that after filing bankruptcy, credit scores rebound, on average, by more than 60 points. Why? Most people that file bankruptcy are in a debt free fall, and things are getting worse every month, so their credit score drops every month. When you file bankruptcy, the free fall stops and the discharge of debts often triggers a credit score rise right away.

Getting a Car After Bankruptcy

With Chapter 13 bankruptcy, you usually cannot get any new credit while in your repayment plan which lasts three to five years. However, if you need your car for work and yours is on its last leg, you might be able to convince the Trustee assigned to your Chapter 13 case to let you take on a modest car loan but while in bankruptcy, you won’t get the most advantageous terms.

After Chapter 7 bankruptcy, you’ll have more options available, and they’ll be quicker to access. To purchase a car with a car loan, the longer you can wait after your discharge, the better. Why? As your credit score rebounds and gets to a higher number, the more favorable terms you will get. However, if you must have a car sooner rather than later, you still have options.

Borrow Now, Refinance Later?

One choice is to take the most favorable loan that you can and refinance it later when your credit score is better, and you can get a lower interest rate. Another option is to forego financing altogether, scrape together your pennies and buy a cheap used car that will get you from point A to point B for six months to a year and use that time to save up for a down payment and work on your credit score.

Leasing is another option. Most consumers that take out leases have credit scores that average 720. However, you can get a lease with a lower credit score. The important thing to consider with a lease is that it’s often not as advantageous as buying because you build little equity during the lease period. Plus, you may have to put down a sizable up-front payment plus taxes and fees.

Then, when the lease period is up, you have to hand back the car or pay a hefty redemption cost to keep the car. Also, if there’s any damage to the vehicle or you went over the mileage, you’ll face a steep penalty. Leases may be attractive if your company is footing the bill to reimburse you and will pay any overage on mileage. As a rule of thumb, though, leases should be viewed with caution.

To find out more about rebuilding your credit after bankruptcy, contact Credit Score Keys. Call 919-495-2365

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Good News! U.S. Credit Scores Have Never Been Higher – But Debt Is Climbing Too

Rachel — Thu, 01 Jun 2017 08:52:13 +0000

Good News! U.S. Credit Scores Have Never Been Higher – But Debt Is Climbing Too Rachel Thu, 06/01/2017 - 04:52

Credit score rising, but so is debt
Image Source: Flickr User Investment Zen

The Wall Street Journal (WSJ) recently shared the good news that this spring, U.S. credit scores reached their highest levels since FICO started tracking scores (which began back in 2005). The average American’s credit score is now 700. That’s impressive on the scale of 300 to 850 used by Fair Isaac Corporation. It’s not perfect credit by any means, but it’s good enough to get a consumer into a decent car loan, mortgage, and credit card deals with favorable interest rates.

Credit Scores Are On the Uptick All Around

A FICO score of 700 ranks as “good,” which is defined as roughly 670-739 points. Even those consumers that don’t average 700 are sitting better than they were a few years ago. WSJ also reported that the percent of consumers with fair credit has dropped. The range for “fair” is 580-669. As of the most recent report, just 20% of Americans have fair credit compared with 25.5% in that range back in 2010. Scores from 300-579 are considered “very poor.”

The Great Recession Made Us More Careful About Debt

After the recession tore family finances apart in the late 2000s, many people are now gun shy about racking up debt. Not only that, but Americans have been saving more of their money. Personal savings now average 5.3% from recent surveys, which is far and above savings statistics from pre-recession numbers. Consumer default rates on debt are also much lower than in recent years which means people are handling their debt load more responsibly. These are all good signs.

Other Debt on the Rise, Cause for Concern?

Although average credit scores are higher and delinquency rates lower, there are other concerning statistics. Student loans and credit card debt are both on the rise, both no exceeding $1 trillion. U.S. News reports that the average American’s debt profile is starkly different from a decade ago with student and auto loans plus credit cards taking precedence over mortgage debt as many struggle to step into home ownership. Household debt at its peak in 2008 was $50 billion less than it stands today at $12.7 trillion.

Consumer Confidence Up, but Debt Mitigates Spending

Despite consumer confidence in the economy, Nasdaq retail analyst Josh Elman is concerned. Elman told U.S. News that the average consumer “isn’t spending as robustly as everyone had hoped for, especially given the strong employment situation” and added, “recently, I’ve started to think about whether the consumer’s too stretched.” By this, he means that despite the healthy job market, people might be too tapped out by existing debt to spend which can slow consumer and economic growth.

Caution: Credit Card Delinquency on the Rise

While debt delinquency overall is lower than it has been in years, credit card delinquency is on the rise which might indicate consumers have overspent and are now struggling to pay the piper. But the flip side of the booming credit market is that if you’re rebuilding your credit after a bankruptcy, this could be a perfect time to get into new credit card accounts while the market is wide open. However, the key to using credit cards to improve your credit is to use them sparingly and pay off in full each month.

A Healthy Economy Is a Good Time to Re-establish Credit

If you’ve just come out of a bankruptcy or are considering bankruptcy to shed debt you can no longer manage, now might be a very good time for you to get out from under debt and kick-start a new and improved credit score. The sooner you get rid of your old debt and get a clean financial slate, the faster you can be on the road to financial recovery and a credit score rebound. Federal Reserve research shows that those that choose bankruptcy see higher credit scores sooner than those that muddle on in debt.

To find out more about improving your credit score after bankruptcy, contact Credit Score Keys. We help North Carolina consumers coming out of bankruptcy to regain their financial footing and re-establish their credit. Call 919-495-2365 today for a free consultation.

Resources:

US News

Wall Street Journal

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Did You Know Bankruptcy Discharge Can Increase Your Credit Score?

Rachel — Thu, 25 May 2017 06:48:38 +0000

Did You Know Bankruptcy Discharge Can Increase Your Credit Score? Rachel Thu, 05/25/2017 - 02:48

Bankruptcy can help improve your credit score
Image Source: Flickr User CafeCredit.com

Most consumers considering filing bankruptcy wrongly believe that doing so will wreck their credit score for a decade. Nothing could be further from the truth so long as you take advantage of the fresh start offered by bankruptcy and work to improve your credit score. In fact, most bankruptcy filers find that their score begins to rebound organically after a Chapter 7 bankruptcy discharge. Here’s why.

Financial Problems Sabotage Your Credit Score

When you’re in over your head with debt, your credit score can take a beating. One missed or late payment can send your score plummeting. If you max out credit cards, miss payments continually, and run over your limits, your score can continue to drop every month. Although it’s the first missed payment that drops your score the most, ongoing issues will continue to send it downwards.

When you file Chapter 7 bankruptcy, your credit card debt is gone within months, and that means the constant negative reporting to your credit report stops. That alone is a relief. Most people that file bankruptcy are in a credit score free fall before filing. And for those that muddle on with debt and don’t file bankruptcy will see their scores continue to drop.

Federal Reserve Research Shows Discharge Helps

The Federal Reserve of Philadelphia published research last year that showed before filing Chapter 7 bankruptcy, the average consumer credit score was 538. But by the time discharge was achieved, their score had risen to an average of 620. That’s more than an 80-point increase with no action taken aside from filing bankruptcy and seeing it through to discharge.

From there, the discharge can have an increasingly positive effect on your credit score if you take strategic steps to improve your credit. Aside from filing Chapter 7 and getting a discharge, you must take specific steps to keep your credit score on the right track. But the research clearly shows that filing bankruptcy represents the opportunity for a rapid increase in your credit score.

Don’t Believe the Myth About Bankruptcy and Credit

While it is true that a Chapter 7 bankruptcy will continue to appear on your credit report for up to 10 years, what is not true is that it will continue to drag down your score as long as you’re working to rebuild your credit score. After the initial rebound offered by bankruptcy discharge, you can improve your credit score month after month until it’s as good or better than before your finances went awry.

For those struggling with more debt than they can service, Chapter 7 bankruptcy can offer the fastest and easiest way to get a fresh financial start. Chapter 7 eliminates not only credit card debt but also medical bills, signature loans, and some older income tax obligations. It will not help with secured debt, child support, alimony and, in most cases, student loans. However, the debt relief under Chapter 7 is impressive.

Rebuilding Credit After Bankruptcy Discharge

After the initial jump that most Chapter 7 filers see after discharge, you can start to work on re-establishing your credit proactively. Usually, it’s a secured credit card that will be the place to start. In some cases, you might be able to leap straight to an unsecured card depending on your credit score after bankruptcy. It’s important to sift through offers and find one with fewer costs and preferably, no annual fee.

From there, you can add credit accounts wisely so that your credit score is always improving. By using credit accounts and paying them off in full each month, you will encourage creditors to continually increase your credit lines, which boosts your score as well. To learn more about improving your credit score after bankruptcy, contact Credit Score Keys.

Call 919-495-2365 for a consultation on improving your credit score after bankruptcy, getting new credit, and increasing your lines of credit to boost your score.

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6 Things To Know About Your Credit Score

Rachel — Thu, 13 Apr 2017 08:27:15 +0000

6 Things To Know About Your Credit Score Rachel Thu, 04/13/2017 - 04:27

Do you know this about your credit score?
Image Source: StockSnap.io

Your credit score is important because it affects your finances as well as your career opportunities. Your credit score can even affect your personal life because some people take debt into consideration when forming relationships. It’s important to understand your credit score so you can nurture it and keep working on improving it. Here are six things to know about your credit score.

#1 You Don’t Have Just One Credit Score

Most people think of their “credit score” as one single thing. It’s not. You can have literally hundreds of different versions of your credit score. When you apply for new credit, the creditor will run an inquiry from one of the three credit bureaus.

Creditors can subscribe to a hundred different scores. The particular score is calculated from your credit report. There are different scores for mortgages versus auto loans and then others for other types of credit. Plus, your credit score can change week to week and month to month.

#2 Many People Don’t Check Their Credit Report

According to WalletHub, roughly 37% of consumers have gone longer than a year without checking their credit report – and more than 15% have never checked their credit report. That’s a problem. Without information, you won’t know if there is a problem with your credit score.

Regularly checking your credit score can be tough to remember. Instead, consider signing up for a low-cost credit monitoring service. Depending on the service you choose, you’ll be notified when your score changes and when there are positive or negative entries on your report.

#3 Many Credit Scores Have Errors

The FTC says about 20% of credit reports have errors on them. That means one in five people have an inaccurate credit report. It’s not likely that an error will be in your favor. Errors can run the gamut from benign to extremely bad for your credit score.

Some impactful errors include negative items like inaccurate debt collections or late payments that were really paid on time. The most problematic errors are identity theft when accounts are opened in your name. These can wreck your credit score and be troublesome to clear up.

#4 You Can Have No Credit Score at All

Did you know it’s possible to have so little credit activity or credit history that you have no credit score at all? About 10% of Americans don’t have a credit score or have one that’s too low to register, but most of these people are younger and just starting out.

The Motley Fool says roughly 80% of 18 and 19-year-olds have no credit score, but there are 45 million Americans with no credit score and not all of these are accounted for by those in their late teens. When you’re starting to rebuild your credit after bankruptcy, at least you’re not this bad off.

#5 Very Few People Have Perfect Credit

Another thing to know is that few people have “perfect” credit. The threshold for “excellent” credit is 720 and above. As of now, the average American credit score is 695 which is considered fair. No matter what your credit score is, you can always improve on it.

Credit scores range widely and you should never assume yours is worse than anyone else. Even people you think are doing well might be in over their head in debt and with a credit score that is much worse than yours. You just never know what’s going on with people in private.

#6 Your Score and Report Are Two Different Things

Many people get their credit score and credit report confused. They are two different things. A credit score is calculated from information on your credit report. There is nothing you can do directly to alter your credit score. It is simply math from a formula that can vary by each creditor.

Your credit report is something you can take steps to improve. If it’s errors, you can request corrections. If you don’t have enough credit, you can build it. If you have negative items on your credit report, you can work to diminish the impact by improving other aspects.

If you are struggling to rebuild your credit after bankruptcy, contact Credit Score Keys today for a free consultation. We strive to help you make the most of your financial fresh start. Call us today at 919-495-2365.

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What Credit Card Activities Can Benefit or Harm Your Score?

Rachel — Thu, 06 Apr 2017 07:24:40 +0000

What Credit Card Activities Can Benefit or Harm Your Score? Rachel Thu, 04/06/2017 - 03:24

Use credit cards wisely to benefit your score
Image Source: Flickr User 401(K) 2012

Credit card activity and debt are major contributors to your credit score. If you’re rebuilding your credit score after bankruptcy, it pays to know how your score is calculated and how your decisions about your credit cards can affect your score for the better or worse.

#1 Opening a Secured Credit Card After Bankruptcy

When you file bankruptcy and get a discharge, much of your unsecured debt should be eliminated. Because your credit card accounts were closed as a result of the bankruptcy, you’re at ground zero with a lower credit score. But bear in mind, if you were maxed out and making late payments, your score was already in trouble.

Opening a secured credit card account is often the first step toward rebuilding credit after bankruptcy. The initial inquiry will drop your score slightly as will opening a new account. However, if you use the card responsibly, keep your balance low or pay off in full each month, your score should increase over time, so it can be a good thing.

#2 Closing an Older Credit Card Account

When you first start rebuilding your credit after bankruptcy, a secured card is usually the starting point but these can come with annual fees and higher interest rates. Once you have an unsecured credit card, you might be tempted to close your other secured account, but you should think twice before you do so because it could lower your score.

First, closing it will lower your average age of credit, which can hurt. Second, closing it will reduce the total credit limits you have, which can also ding your score. Third, if you’re carrying any credit card debt, closing it can greatly increase your utilization (the amount you owe vs. credit lines), which can hammer your score. It may be better to keep it open and use it sparingly so it stays active.

#3 Missing Payments or Paying Less Than Minimums

Ideally, paying off your credit cards in full each month is the best way to keep your debt under control. However, if you must carry a balance due to an unexpected expense, vacation, home or car repair, etc., the next best thing is to pay it off as soon as possible and never miss a payment. Each time you miss a payment, your credit score will drop.

Also, if you pay less than the minimum, your credit score will take a hit. Make sure you pay on time and always pay more than the minimum, even if it’s only by a few dollars. A maxed out card will hurt your score as will late or missed payments or paying too little. If you’ve struggled with credit card debt in the past, avoidance may be your best plan for the future.

#4 Opening a New Unsecured Credit Card

If your credit score is heading in the right direction, you might wonder how opening a new unsecured credit card account will affect it. A hard inquiry from the card issuer will initially lower your credit score, as will opening a new account the first month or so it’s on your credit report. But, overall, if managed wisely, a new account could help your score.

An increase in available credit lines can boost your score and the impact of your hard inquiry on your credit report won’t last too long. A new account, used sparingly and paid off each month, should increase your credit score more and more each month if nothing else negative shows up on your credit report.

If you’re just coming out of bankruptcy, now is the time to work on improving your credit score. That’s where Credit Score Keys can help. Contact us today for a free consultation on rebuilding your credit score after bankruptcy. Call 919-495-2365 today to talk about your credit.

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