What Information Credit Scores Do Not Consider
FICO® and VantageScore do not consider the following information when calculating credit scores:
- Your race, color, religion, national origin, sex or marital status.
- Your age.
- Your salary, occupation, title, employer, date employed or employment history.
- Where you live.
- Soft inquiries. Soft inquiries are usually initiated by others, like companies making promotional offers of credit or your lender conducting periodic reviews of your existing credit accounts. Soft inquiries also occur when you check your own credit report or when you use from companies like Experian. These inquiries do not impact your credit scores.
How Long Does It Take For Your Credit Score To Improve When You Start Paying Student Loans
Your credit score could start improving immediately once you start making payments on your student loans, but most people should keep their initial expectations low. Like with any major loan, early student loan payments go more toward paying down interest rather than reducing the principal loan amount. Your overall credit utilization rate will remain high until your payments significantly reduce your principal.
You Never Check Your Credit Report
It is super easy to forget to check your credit score or be too worried to do it. Some say that ignorance is bliss. Unfortunately for them, that blissful ignorance will come to an end the day they want to buy their first home or car or rent an apartment.
This is one of the biggest mistakes you can make while also being the easiest to avoid. Checking your credit score will alert you if there is fraud linked to your name, show you your credit score and let you know if anything else needs to be remedied.
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Why There Are Different Credit Scores
For example, VantageScore creates a tri-bureau scoring model, meaning the same model can evaluate your credit report from any of the three major consumer credit bureaus . The first version was built in 2006. The latest version, VantageScore 4.0, was released in 2017 and developed based on data from 2014 to 2016. It was the first generic credit score to incorporate trended datain other words, how consumers manage their accounts over time.
FICO® is an older company, and it was one of the first to create credit scoring models based on consumer credit reports. It creates different versions of its scoring models to be used with each credit bureau’s data, although recent versions share a common name, such as FICO® Score 8. There are two commonly used types of consumer FICO® Scores:
- Base FICO® Scores: These scores are created for any type of lender to use, as they aim to predict the likelihood that a consumer will fall behind on any type of credit obligation. Base FICO® Scores range from 300 to 850.
- Industry-specific FICO® Scores: FICO® creates auto scores and bankcard scores specifically for auto lenders and card issuers. Industry scores aim to predict the likelihood that a consumer will fall behind on the specific type of account, and the scores range from 250 to 900.
You Have Court Judgments
Judgments are issues of public record that show up on your credit report and that can lower your overall score. Unfortunately, these debts can be tough to resolve.
How to avoid it: Of course, the best way to avoid court judgments is to pay bills on time. If the debt was settled long ago but is still on your credit report, consider contacting the court in question to confirm that it has updated the records.
How to fix it: Generally, consumers need to take their cases to an appeals court if they want to reverse judgments. Judgments can remain on your credit reports for seven years from the date the judgment was filed, Ulzheimer said. Even paying a judgment wont cause it to be removed. The only legitimate way to get a judgment removed is if it is vacated.
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Keep Your Credit Utilization Rate Low
Both scoring models weigh this factor heavily. To determine your current utilization rate, begin by adding up the credit limits of all your credit cards.
Lets say you have two credit cards one with a limit of $2,000 and another with a limit of $3,000. This gives you $5,000 of total available credit.
Next, divide your current total balances by your available credit and multiply it by 100 to get the percentage. Imagine you have $1,000 in outstanding balances $1,000 divided by $5,000 is 0.20 so, in this example, your utilization rate would be 20%.
As you spend less of your available credit, your credit utilization rate goes down. In the above example, if you reduced your credit card spending to $500, your utilization rate would drop to 10%.
What credit utilization rate should you aim for? Using no more than 30% of your available credit is a great start.
Tips On How To Build Good Credit
If your credit score isnt where you want it to be, dont worry. There are many small changes you can make that will help you build your score over time. Here are a few of our tips:
- Take out new credit. Taking on new credit, like car payments , and making those payments on time will help you build credit.
- Automate your payments. You wont miss payments if they happen automatically! Save yourself the hassle and keep them automated.
- Pay your credit card balance in full. The less money you have on your credit card, the better. If you pay off your bill in full each month, youll avoid interest fees and build credit.
- Have more available credit than used credit. Especially when it comes to credit cards, try to use less than half the credit you have available. If you can keep your balance under half, itll give your score a boost.
- Borrow what you can afford. Try not to live beyond your means. Borrowing what you can afford means you should have the funds to pay it back and maintain good credit.
Download our guide Repairing and Rebuilding Your Credit Score to learn more about your credit score, how it works and how you can rebuild it if its not where youd like it to be.
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You Dont Fix Credit Report Mistakes
If you see a mistake on your credit report, you have to take steps to fix it and follow up to make sure its remedied. Otherwise, the error will remain on your report and might hurt your credit score.
Contact the credit bureau that issued the report that contains the mistake and ask the bureau to investigate it, Kelly said. Also, send a letter to the credit issuer such as the bank or credit card company that provided the incorrect information to the credit bureau to let it know youre disputing that information.
How to avoid it: Its tough to avoid this situation after all, a mistake is just that, an error. However, once you discover the mistake, jump on it right away.
How to fix it: Always check the accuracy of the information on your credit report. According to the Fair Credit Reporting Act, credit bureaus are required to correct or remove inaccurate information. Start by sending a letter to the lender and each of the three credit reporting agencies Experian, Equifax and TransUnion stating the date the payment was due and the date it was made. For best results, include all supporting documentation and an explanation of the error.
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What Is A Good Fico Score
FICO® creates different types of consumer credit scores. There are “base” FICO® Scores that the company makes for lenders in multiple industries to use, as well as industry-specific credit scores for credit card issuers and auto lenders.
The base FICO® Scores range from 300 to 850, and FICO defines the “good” range as 670 to 739. FICO®’s industry-specific credit scores have a different range250 to 900. However, the middle categories have the same groupings and a “good” industry-specific FICO® Score is still 670 to 739.
Monitor Your Credit Report And Score
Checking your credit score right before you apply for a new loan or credit card can help you understand your chances of qualifying for favorable termsbut checking it further ahead of time gives you the chance to improve your score, and possibly save hundreds or thousands of dollars in interest. Experian offers free credit monitoring for your Experian report, which in addition to a free score and report, includes alerts if there’s a suspicious change in your report.
Keeping track of your score can help you take measures to improve it so you’ll increase your odds of qualifying for a loan, credit card, apartment or insurance policyall while improving your financial health.
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What Is The Highest Credit Score Can You Get A Perfect Score
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The highest credit score you can have on the most widely used scales is an 850. For common versions of FICO and VantageScore, the scale ranges from 300 to 850 and lenders typically consider anything above 720 excellent credit.
Even if you succeed in getting the highest credit score possible, you’re unlikely to keep it month after month. Scores fluctuate because they are a snapshot of your credit profile, which changes over time.
The widely-used FICO 8 scoring model and the VantageScore 3.0 are both on a 300-850 scale. Credit scoring company FICO says about 1% of its scores reach 850. VantageScore spokesman Jeff Richardson says fewer than 1% of its credit scores are perfect.
The way people get perfect scores is by practicing good credit habits consistently and for a long time. As you might expect, older consumers are more likely to have high scores than younger ones.
But scores fluctuate because they are a snapshot of your credit profile. Even if you succeed in getting the highest credit score, youre unlikely to keep it month after month.
Perfect Score Vs Average Score: Credit Profiles
People with perfect FICO® Scores carry debtthey just do it differently from those further down the scoring scale. U.S. consumers with perfect scores have more tradelines, or credit products, but less average debt than those with the average FICO® Score, which in the fourth quarter of 2018 was 701.
People with FICO® Scores of 850 carried an average 6.4 credit cards compared with the national average of 3.8 credit cards. When it came to credit card debt, however, Americans with perfect FICO® Scores owed less than half the U.S. average: an average $3,025 compared with the national average of $6,445.
In every other debt category except mortgage and personal loan, people with perfect scores had more open tradelines but less debt than their counterparts with average scoresunderscoring the value of being able to manage debt while having numerous credit accounts.
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Sure You Can But Holding Onto It Can Be Fleeting
You may have been able to check your credit score lately using a number of free services including from your bank or mortgage lender. But, what good is knowing your FICO score if you dont understand what the number means on the overall reporting scale? Maybe you have a 740 FICO score. If the maximum score is 750, youre pretty much a credit genius. If the max is over 1,000, youre sporting a C averagenot really all that impressive.
So what is the highest credit score possible, and how do you achieve it?
Something Was Recorded On Your Credit Report
Think back on your payment history have you missed a credit card payment in the last few months? Were there any bills that you may have missed in previous months?
Missed payments are typically not reported to the credit bureaus until theyre at least 30 days late, so your score wont be impacted until after that time. Your score will be hurt by a payment thats more than 30 days late, but a delinquency, referring to a payment that is over 30 days late, can devastate your score.
Derogatory marks such as tax liens, charge-offs, collections, foreclosures or bankruptcies have drastic impacts on your credit too, and it may take weeks or months for them to show up on your report. If youve experienced any of these, it may take time for your score to change.
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What To Do If You Don’t Have A Credit Score
For FICO® Scores, you need:
- An account that’s at least six months old
- An account that has been active in the past six months
VantageScore can score your credit report if it has at least one active account, even if the account is only a month old.
If you aren’t scorable, you may need to open a new account or add new activity to your credit report to start building credit. Often this means starting with a or secured credit card, or becoming an .
How Does It Work
Although there are many different , your main FICO score is the gold standard that financial institutions use in deciding whether to lend money or issue a credit card to consumers. Your FICO score isnt actually a single score. You have one from each of the three credit reporting agenciesExperian, TransUnion, and Equifax. Each FICO score is based exclusively on the report from that credit bureau.
The score that FICO reports to lenders could be from any one of its 50 different scoring models, but your main score is the middle score from the three credit bureaus, which may have slightly different data. If you have scores of 720, 750, and 770, you have a FICO score of 750.
A perfect score of 850 will give you bragging rights, but any score of 800 or up is considered exceptional and will give you access to the best rates on credit cards, auto loans, and any other loans.
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Don’t Close Your Cards
Once you’ve paid off a card, it can be really satisfying to cut it up! But don’t close your account. Keeping your credit card account open but unused helps give you a long, established credit history, and can improve your overall credit utilization ratio. . Although sticking the credit card in a drawer has it benefits you may also be able to request a credit card freeze. You may be familiar with a credit card freeze since it used whenever you report your credit card lost or stolen. In this case, you may use a credit card freeze if you want the card open in your name but don’t want or need to use the credit card for purchases.
How Credit Habits Factor Into Your Credit Score
The FICO scoring model looks at your credit utilization in two parts. First, it scores the credit utilization for each of your credit cards separately. Then, it calculates your overall credit utilization, that is, the total of all your credit card balances compared to your total . A high credit utilization in either category can hurt your credit score.
Credit utilization is also a significant factor in the VantageScore system, another type of credit scoring calculation. While VantageScore doesn’t assign percentages to each category as FICO does, it lists a combination of credit utilization, balances, and available credit as “extremely influential” and the top factor in its scoring model.
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How To Raise Credit Score By 200 Points
A few points on your credit score can mean the difference between getting approved for a loan at a reasonable interest rate and being denied a loan altogether. If your credit score is currently under the 600-mark, its time to take some steps to give it a boost. Here are some ways you can effectively raise your credit score by 200 points:
Dont use more than 30% of your credit card limit Just because your company allows you to spend a certain amount of money on your credit card doesnt mean you should max out your card every month. To get your credit score up, keep your credit card spending to no more than 30% of your credit limit. Doing so will increase your score as you pay your card on time every month.
Settle old debt Creditors are sometimes willing to negotiate with borrowers to eliminate certain negative items from their credit in order to receive payment. You may be able to do this with your creditors it doesnt hurt to ask. Settling your old debt can do wonders for your credit score and will even help you avoid any issues in the future.
Make all debt payments in full Any secured credit cards or lines of credit should be paid off in full whenever possible. This will help you give your credit score a boost.