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Credit 101

Your credit profile is your financial report card that is checked by potential lenders, employers, car lessors, landlords and others. Included in your credit report are your identifying information, a payment history of your opened and closed accounts, collections, public records and inquiries.

Experian, TransUnion and Equifax are the three main credit bureaus that report your credit history. The credit score is a very important number assigned to your credit history that indicates to potential lenders your likelihood to repay a loan in a timely fashion. Most lenders use the FICO score that ranges from 300-850, although there are a host of scores out there.

Pro-Tip:
Even if you pay for everything in cash, your credit report and score will still be of interest to you, as cell phone companies, car lessors and landlords check your credit to assess how likely you are to pay your bills!

Pro-Tip:
Even if you are not planning to apply for credit anytime soon, it’s always time to build up your credit. Life brings surprises and you never know when you will need your good credit score!

The three major credit bureaus do not share information, except in the case of placing fraud alerts on your profile. Therefore, the information each bureau uses to calculate your credit score is unique. Your credit score and profile will vary from bureau to bureau. But all bureaus agree that a restored score will allow you to once again get approved for loans, credit cards and car leases!

START BUILDING YOUR CREDIT PROFILE TODAY!

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Your Credit Score: The Pie

Credit Store / FICO Store

The FICO score is a credit score that is calculated with a mathematical algorithm from the Fair Isaac Corporation. Your FICO score is calculated by a mathematical algorithm that integrates many sources and types of information on your credit profile. Your FICO score gives lenders a dependable evaluation of how risky it may be to extend credit. There are many scores in the marketplace, however, most lenders rely on the FICO score for assessing borrowers’ risk.

All credit reports contain a section that lists your name(s), your address(es), social security number and date of birth. Credit reports may also list phone numbers and employment history. The credit bureaus use this information to verify your identity.

Pro-Tip:
Make sure the identifying information on your credit profile is up to date and error-free!

Pro-Tip:
To avoid misinformation errors on your credit profile, keep your name uniform across all credit applications!

WE CAN HELP YOU UPDATE AND CORRECT YOUR PERSONAL INFORMATION!

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Payment History 35%

The credit history section of a credit profile contains all the details of your open and closed accounts. The credit history section includes dates of account opening, closing (if relevant), last activity and the payment history, including late payments for the past seven years.

Your credit history not only affects whether you will secure a loan, but also impacts your interest rate, which can translate into tens of thousands of dollars over the life of a loan. Borrowers with a clean credit history are seen as less risky and will be eligible for more favorable terms on a loan.

Pro-Tip:
Set up secure payment reminders or autopay for recurring bills!

Debt to Credit Ratio (Credit Utilization) 30%
also referred to as “Amounts Owed”

Debt to Credit Ratio (Credit Utilization) 30%
also referred to as “Amounts Owed”

The debt to credit ratio is a percentage of the amount of debt you are using as compared to the amount of credit afforded to you for revolving credit accounts. For example, if you are approved for a credit card with a $10,000 credit limit and you spend $5,000, your debt to credit ratio is 50%. The debt to credit ratio takes into account how much you owe each creditor and how much you owe in total. This section also takes into account how much you owe on installment accounts as compared to the original loan amount.

If you are using most of the credit afforded to you, the banks may perceive that you are overextended and therefore a higher credit risk. However, having credit card accounts with an outstanding balance does not necessarily mean you are an “at-risk” borrower; a solid history of on-time payments of credit accounts is one way to demonstrate to lenders that you can manage additional credit.

Length of Credit History 15%

Credit History is the length of time you had credit, both for individual accounts and in total. In general, a longer credit history is looked upon favorably. Credit scores take into account the age of your oldest and newest accounts and the average age of all accounts. If you have closed accounts, the time since you used these accounts are factored in.

Credit Soup 10%

The mix types of credit are called the credit mix, which we call “credit soup”. The soup may include a mix of mortgage loans, credit card, student loans and car leases. Creditors see how well you manage different types of credit, both revolving and installment, to assess their risk in lending you money.

Pro-Tip:
It is not a good idea to apply for more credit so as to diversify your mix. Only apply for credit when you actually need it!

what’s in your soup?

Inquiries/Potential Credit 10%

The section of inquiries on your credit report includes a list of the companies that have “pulled” your credit report in the last 24 months.

There are two types of inquiries:

Hard Inquiries

Hard inquiries are ones for which the consumer has given consent to pull the credit report. Hard inquiries result when the consumer is shopping around for credit (credit card, car lease or student loan). Hard inquiries do affect the credit score because the lender sees potential debt on the horizon.

A hard inquiry signals to lenders that you may have new credit obligations coming up the pipeline. Lenders assess potential credit from the hard inquiries on your credit report.

Soft Inquiries

Soft inquiries are inquiries that do not affect your credit score. Soft inquiries are conducted by companies that want to extend promotional offers and by your creditors who do periodic credit reviews.

The inquiries section of a credit report also takes into account how many new accounts have been opened, the length of time since a new account was opened, and the length of time since hard inquiries were made.

Pro-Tip:
Avoid opening up many credit accounts in a short time period; when doing so you appear as a greater risk to potential lenders!

LET US HELP YOU RESTORE YOUR CREDIT PROFILE!
YOUR FINANCIAL HEALTH COUNTS!

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Using you Credit Score

Building and maintaining a healthy and solid credit profile is a vital component of your overall financial profile! Let us help!

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Identity Theft

Identity theft occurs when someone uses your personal information fraudulently. Unknown transactions, including opening credit cards, securing loans and even renting apartments can be the doing of identity thieves who have hijacked your identity for their personal gain. Bank and retirement accounts may also be affected. Identity theft may have occurred without you knowing until you are denied credit, called by collection agencies or analyze your credit report.

CONTACT US TO PUT A FRAUD ALERT ON
YOUR CREDIT PROFILE TODAY!

PROTECT YOURSELF!

Public Records

A public record is any information which a governmental body is required to maintain and is accessible to the public. Bankruptcies, judgements and tax liens are matters of public record.

In 2017, the National Consumer Assistance Plan went into effect, no longer allowing judgements and tax liens on credit reports unless very strict requirements are met. Judgements that were placed before 2017 do remain for their full term of seven years from date of court filing, however, judgements entered into the court system after 2017 are typically not reported.

Although judgements are no longer reported on credit reports, they are still public records and still affect your ability to qualify for credit and/or loans. Lenders use many search engines to check whether outstanding judgements against a potential client exist.

STILL HAVE JUDGEMENTS ON YOUR CREDIT PROFILE?

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Ex-Spousal Issues

Your former spouse’s debts may be included in your credit report. Even if you get divorced, the divorce does not free you from joint debts incurred while married. Even if a divorce judge orders your ex-spouse to take responsibility for certain bills, the legal responsibility rests with you to make sure the bill is paid.

Pro-Tip:
Any credit grantor has the legal right to report negative information about you to the bureaus if your ex-spouse is late on a joint account. If the situation escalates and your ex-spouse refuses to pay, you may be wise to pay to avoid legal action!

Pro-Tip:
If in the middle of a divorce, keep making at least minimum payments until all accounts are completely separated; if you miss even one payment, this mistake can remain on your credit profile for seven years, making it more difficult to obtain credit!

AVOID MISHAPS, WHEN YOU SEPARATE YOUR
ACCOUNTS FROM YOUR EX-SPOUSE!

WE CAN HELP!

Inheritance Claims

There are times when a property is in dispute and a judge may issue a non-payment order on the property. Even if a judge has ordered the non-payment, mortgage payments are still reported as late, causing the score of the original owner of the mortgage to drop significantly.

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