Credit-Crunch Aftermath - Monitoring Your Reports is More Vital Than Ever
As creditors tighten their standards - canceling underused accounts and lowering credit limits - it is now more important then ever to monitor your credit scoring and carefully manage your credit debt.
Credit issuers are being cautious even with consumers who have excellent payment histories and high credit scores.
So greater vigilance has become a requirement.
Ordering and reviewing your credit report and scores from Equifax, Experian and TransUnion, at least once a year, is becoming the practice of choice for those most immersed in maintaining or achieving excellent credit score.
FICO, the most commonly used credit scoring system, rates consumers on a scale from 300 to a perfect 850.
In the ongoing credit crunch, loan providers are becoming stricter, looking for applicants with 750 or better.
Just 18 months ago, they would have considered those with scores closer to 700 as more than acceptable.
The good news for consumers is that monitoring your credit has become easier and cheaper.
You are entitled to one free credit report from each one of the three credit bureaus, once a year.
To get your score, you normally have to pay a small fee - probably less than what you spend on one stop at Starbucks.
And it's well worth it.
The bad news is that there is much more to lookout for.
Some credit consumers are seeing their zero-balance cards cancelled, despite excellent payment histories.
Some don't realize that such cancellations could hurt their credit rating by lowering their total available credit.
A high balances-to-available-credit ratio is a negative factor in credit scoring.
Moreover, if the credit card was a long-standing account, it can hurt a credit ranking as well.
Length of credit history in another important factor.
Here are the tips when looking at your credit reports and scores: Look for Mistakes: Carefully review every credit account in your credit, including personal information.
On average, a third of consumers find mistakes on their reports.
Each credit bureau allows you to dispute entries.
They are required to do so.
A single mistake, such as one account mistakenly marked as delinquent, can lower your score by 100 or more points.
Or credit limits that are mistakenly stated as to low can hurt your ranking.
About 35 percent of your score is based on past debts that are more than 30 days old.
The most important single piece of advice for a healthy credit score: Never be late with a payment.
Balances versus Credit Limits: It's important to remember the key ratio used in your credit score: how much you owe versus how much credit has been extended to you, also known as your credit limit.
Ten percent is the ideal.
For example, your total balances equal $5,000, while your total credit granted you is $50,000.
Pushing that ratio to 20 percent gets you closer to having your credit score affected.
If it's more than 20 percent, then your score will definitely take a hit.
Length of Credit History: You may have heard financial gurus on national television back-peddling on the age-old advice of telling consumers to pay off their balances on a regular basis.
In the post-credit crunch era, the new advice is to keep a manageable balance.
This practice could prevent a credit card company from canceling your card because of none-use, and it will keep your long-standing accounts open.
This is very important since about 15 percent of your score relies on your credit history.
And, as discussed above, keeping your accounts helps your maintain a healthy utilization ratio.
A Good Mix of Credit Account Types: Having a healthy mix of credit cards, car loans and mortgages is another factor credit scorers consider.
Unfortunately, it may be the one that consumer can least control.
Keep in mind, obtaining new credit can be beneficial or detrimental, depending on your particularly financial circumstances and past credit history.
Read Carefully What the Credit Agencies Have to Say: When the three credit bureaus deliver your reports and credit scores, read what they have to say very carefully.
They will give you a somewhat detailed explanation of your score, and they will give your their own overview of the most important factors used to compile your rating.
eCreditDaily.
com believes that the most informed consumer is the most empowered consumer.
And this is best achieved by monitoring your credit reports and credit scores on a regular basis.
Credit issuers are being cautious even with consumers who have excellent payment histories and high credit scores.
So greater vigilance has become a requirement.
Ordering and reviewing your credit report and scores from Equifax, Experian and TransUnion, at least once a year, is becoming the practice of choice for those most immersed in maintaining or achieving excellent credit score.
FICO, the most commonly used credit scoring system, rates consumers on a scale from 300 to a perfect 850.
In the ongoing credit crunch, loan providers are becoming stricter, looking for applicants with 750 or better.
Just 18 months ago, they would have considered those with scores closer to 700 as more than acceptable.
The good news for consumers is that monitoring your credit has become easier and cheaper.
You are entitled to one free credit report from each one of the three credit bureaus, once a year.
To get your score, you normally have to pay a small fee - probably less than what you spend on one stop at Starbucks.
And it's well worth it.
The bad news is that there is much more to lookout for.
Some credit consumers are seeing their zero-balance cards cancelled, despite excellent payment histories.
Some don't realize that such cancellations could hurt their credit rating by lowering their total available credit.
A high balances-to-available-credit ratio is a negative factor in credit scoring.
Moreover, if the credit card was a long-standing account, it can hurt a credit ranking as well.
Length of credit history in another important factor.
Here are the tips when looking at your credit reports and scores: Look for Mistakes: Carefully review every credit account in your credit, including personal information.
On average, a third of consumers find mistakes on their reports.
Each credit bureau allows you to dispute entries.
They are required to do so.
A single mistake, such as one account mistakenly marked as delinquent, can lower your score by 100 or more points.
Or credit limits that are mistakenly stated as to low can hurt your ranking.
About 35 percent of your score is based on past debts that are more than 30 days old.
The most important single piece of advice for a healthy credit score: Never be late with a payment.
Balances versus Credit Limits: It's important to remember the key ratio used in your credit score: how much you owe versus how much credit has been extended to you, also known as your credit limit.
Ten percent is the ideal.
For example, your total balances equal $5,000, while your total credit granted you is $50,000.
Pushing that ratio to 20 percent gets you closer to having your credit score affected.
If it's more than 20 percent, then your score will definitely take a hit.
Length of Credit History: You may have heard financial gurus on national television back-peddling on the age-old advice of telling consumers to pay off their balances on a regular basis.
In the post-credit crunch era, the new advice is to keep a manageable balance.
This practice could prevent a credit card company from canceling your card because of none-use, and it will keep your long-standing accounts open.
This is very important since about 15 percent of your score relies on your credit history.
And, as discussed above, keeping your accounts helps your maintain a healthy utilization ratio.
A Good Mix of Credit Account Types: Having a healthy mix of credit cards, car loans and mortgages is another factor credit scorers consider.
Unfortunately, it may be the one that consumer can least control.
Keep in mind, obtaining new credit can be beneficial or detrimental, depending on your particularly financial circumstances and past credit history.
Read Carefully What the Credit Agencies Have to Say: When the three credit bureaus deliver your reports and credit scores, read what they have to say very carefully.
They will give you a somewhat detailed explanation of your score, and they will give your their own overview of the most important factors used to compile your rating.
eCreditDaily.
com believes that the most informed consumer is the most empowered consumer.
And this is best achieved by monitoring your credit reports and credit scores on a regular basis.
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