*Thanks to all who could make it and for those who were able to bring cookies! Check out the notes (put together by our one and only, Megan Whitmer) below for a few tips, facts and myth busters on credit.
This was presented by Josh Heckathorn, the owner of creditnet.com.
There are thousands of credit scores out there but only FICO scores are real. FICO scores are the numbers used by companies to determine if you are worth the risk of loaning money too. You can find your FICO score at myfico.com
It may seem unfair that if you paid cash for everything your whole life and had no credit score that companies wouldn’t give you a good rating. But before a company lends you $200,000 to buy a home they need reliable documented proof that you can borrow money and pay it back. Credit cards are not bad, Credit dept is bad.
Here is the break down of your credit score. If you improve these things your score will go up.
35% of the score is due to past payment history. Have you paid your credit card bills on time? If you have had some problems in the past it could take up to 7 years to get that off your record. It is also important to put something on your credit cards and then pay it off every month. The payment history portion does not require you to put a certain amount on your credit card, any amount will do. The important thing is that you are never late or delinquent on the payments.
35% of the score is based on credit utilization. Take all your credit cards/lines of credit etc. Add up the total amount that you could charge to all these accounts if you maxed them all out. If that amount equals $30,000 then spending $3000 that month (on any mix of credit cards) will mean that your credit utilization is 10%.
Another example. If you have only 1 credit card and the max limit on it is $1000. If you put $500 on it every month then your credit utilization is 50%.
Once you cross the 30% credit utilization by using cards too much, it begins to decrease your FICO score.
If you are one who never uses a certain credit or any credit cards, keep in mind that you need to keep up a payment history and that a credit card company can just cancel it with or without your approval.
If you have a low credit limit see if you bank will increase it based on your good payment behavior. Over several months this will improve your credit utilization number.
There could also be a slightly bad mark against you if you have too high of a credit limit (ex: $150,000) they would be concerned that at any moment you might take out that amount and then be in super big trouble.
15% of your credit score is length of credit history. Remember that credit card that you opened up when you were 18 years old? If you still have that credit card open you are lucky. The longer history you have with a credit card the better. Even if you’ve had some bumps on the road. Pay it off, but keep it. If you have a history of opening and closing credit card accounts then stop doing it and keep the ones you have open.
10% of your credit score is based on new credit inquiries. For example if you want to buy a home, the lenders will do a “hard” check on your credit. This will affect your credit score negatively and yet is necessary. The more “hard” checks that are done the more they hurt your score. So before a company checks your credit ask them if they are doing a “soft” check (this will not hurt your credit) or a “hard” check. Be frugal with the amount of hard checks you authorize.
10% The final 10% of your score comes from having a credit mix. This means that your score will improve as your credit sources become more varied. Credit cards are one type, store credit accounts add to the mix as do home loans.
Piggybacking-- If your older children have no credit and cannot build it easily you can add them as authorized users to your own credit accounts and they will then start gaining credit based on your good decisions. Just be careful about giving them an actual card. J
Myth buster. This is the truth
-Never leave a balance on your card. Pay it in full every month. There is a rumor out there sometimes backed by banks themselves that says you need to leave money on the card and pay interest on it every month to increase your credit score. This is FALSE. PAY IN FULL. PAY IN FULL.
-Income has nothing to do with credit scores
