Knock Out Debt!

What do champions do in the off-season? They train, of course! They prepare for game day by working out and keeping themselves in shape. If you stay ready, you don’t have to get ready. It’s no different when it comes to your credit.

Whether you decide to make a major purchase or to open a new credit card, your credit will have an impact on the terms of your loan. The higher your score, the lower your interest rate will be. A lower score will get less favorable terms and higher interest rates that cost you more money over time. To prepare yourself to get into the game, it requires dedication and consistency to see the results.

Lots of people may not realize that they have more than one credit score. There are three major credit bureaus that lenders look at when you apply for a loan or credit – Experian, Equifax and TransUnion.  Surprisingly, all three bureaus may not have the same information about you. That’s why your scores may be different for each one. Creditors don’t always report to all three. That’s why it is important for you to pull your own report and look at them all to make sure that what is reported is accurate. You are ultimately responsible for what is on your credit report. Disputing items on your credit report takes time and effort to resolve. It is best to take care of these things before someone pulls your credit…get ready!

There are several factors that go into creating your credit score(s):

1. Payment history: Make sure that your payments are on time, all the time. Utilize automatic payments when you can. This is an easy way to create a consistent and positive payment history. Your credit report can go back for several years, even showing closed accounts. This is especially important when you are trying to get new credit or loans. Recent late payments, multiple inquiries and collections are a red flag!
2. Credit utilization: Don’t max out your credit cards! Lenders like to see that you are a responsible user who is able to pay back your obligations. Keep them under 30% of the limit if you can.
3. Kinds of accounts: There are several kinds of loans out there. Lenders also like to see that you are able to manage different types of accounts. You can have revolving debt (such as credit cards) or installment loans (like a car loan, student loan or mortgage). Make sure that you have a good mix of credit account types.
4. Credit age: New credit may initially have a negative impact on your credit score because it is an increase in your debt load. As time goes on and you pay your bills on time, the history of those accounts will begin to work in your favor. It is better to have aged accounts that show a good payment history.
5. Inquiries: When you put in an application, the creditor may do a “hard inquiry” on your credit. Too many of these inquiries may hurt your credit score. There is an exception to this if you are shopping for a new home or auto loan, they are generally counted as one inquiry instead of several, if done over a short period of time. There are other instances when creditors may do a “soft inquiry” which may have a lesser effect or none at all.  

There are many ways that you can prepare yourself by improving your credit. All of them take time and discipline, but the benefit of having good credit is priceless. Always spend responsibly, your credit score will speak for you!