So you've looked at your credit report, or a company you interviewed with or a credit card company has given you your credit scores as part of their background check on you, and now you ask yourself, "What does this mean?" Your credit history is such an important part of financial planning but there's little readily available information on how to understand them, and schools and credit companies don't cover the matter and all its important details. How rude of them! But there's help for you and not too late at all to understand what your credit score and history represents, through these three major points:
1. The three Credit bureaus and their scoring system
Credit is such an important facet of judging and measuring financial stability throughout the US that just one company would be able to fully oversee all even one person’s financial judgments. Even though the government collects the records, it’s up to the three major Consumer Reporting Agencies to collect the data on your credit reports: Experian, located in Texas, Equifax, located in Georgia, and Transunion, located in Pennsylvania.
Together, all three companies compile your credit worth through a scoring system known as FICO, which summarizes across each bureau how well a standing your credit is for further business with investments and business. This is called a “predictive analysis”, which means that credit companies will judge based on your past activity if you’re a responsible enough consumer to invest in. Through a scoring system ranging from 300 to 850, the FICO score is meant to represent to companies giving you investments or interest rates how more likely they will for you, with the highest scores being the most likely to keep their payments on time and have larger limits. Having as high as a 760 is considered excellent and above the average for the US, and having below 600 and especially in the 500s is considered poor.
2. How your FICO score is measured?
But how does your FICO score come into creation in the first place? No one is born with or can buy their way into a set score, it’s judged through your activity with credit, investments and necessary payments. Some parts of your credit history are far more important than others, and a quick breakdown of the percentages of what measures your FICO score can be seen in this pie chart:
As you can see, your payment history and debts are by far the most important factors. If you owe a lot or aren’t up-to-date on your payments, it’ll definitely hurt your credit more than if you are timely with your payments and aren’t owing more than you can pay. The length of how much you’ve kept your credit, the ability to get new credit, and the variety of credit you have are less important, but still take up a total 1/3rd of your score so being accepted by new credit, having different types of accounts and maintaining them all over time should be a priority.
It’s worth noting there are various things that won’t make an effect on your FICO score and thereby entire credit report. Your income, interest rates or the amount of dependents on your household don’t come into your credit records whatsoever so you could be living very comfortably or have a lot of responsibilities and your credit record would be entirely dependent on the above factors.
3. What accounts are on your records, positive and delinquent?
The types of accounts that do appear on your credit history and are what your payment history and debt can vary from personal loans, mortgages, credit cards, and auto loans, but how they appear positively or negatively is entirely dependent on your ability to upkeep with their payments. Any account that becomes 30 days past due or more starts to show under their records as a late payment, and can be a negative influence on your credit score for as long as two years! And even if you’re not late, having a large balance on your account suggests you’re spending more than you can invest. Clearly the best thing you can have on your account is a lengthy investment that you are paying in full and on-time.
Hard inquiries from companies researching your credit for possible creation of a new account will show, so applying to multiple credit cards at one time is always a bad idea because they’ll bring down your credit score in the process. And finally, any delinquent account that isn’t paid for as long as the individual account lender can decide that means you’re not going to pay off can change the account to a completely negative one: a charged-off or settled account, meaning they’ll contact you in regards to cancel the account altogether and have a separate payment plan to settle the outstanding debt; or a collection account where a separate vendor will pay off the account and then charge you with interest to pay them to settle the account.
Maintaining a long-lasting and positive credit line is a difficult endeavor for any adult with financial responsibilities, but the benefits can become pretty clear the more you research into credit and what it can do for you. For further information, a company such as Fix Your Credit Consulting offers services, both complimentary and more intensive, that could help you understand your credit situation and take steps of action toward it if you so require.
Is your budget giving you a blow every time you are trying to make one? Or, is your money ‘unhappy’ because it is going out of your pocket very often? If you are stuck in any one of these situations or both, then it’s high time that you should make a perfect budget.
Budget helps to pay your debt, save for the future, and make the most of your hard-earned dollars. Do you know how to make a budget? If not, then check out these cool tips below:
4. Follow the envelope rule: Are you mixing up the money you have kept for paying your utility bills? If yes, then keep your money in separate envelopes for each utility bill. For instance, keep a separate envelope for electricity bill, another for gas bill, and so on. You can also maintain separate accounts for savings and expenses.
5. Know about your money’s whereabouts: To make a perfect budget, it’s important to keep track of your expenses. If you aren’t good at drafting your own budget, then take the help of different budgeting tools that are available in the market. You can also use simple pen and paper to make a budget plan. You can always take the help a professional when needed.
6. Go for a cash-diet plan: Experts say that, you tend to spend less with cash in your hand. So, the next time you go out for shopping, make it a point to pay with cash. Use cash as much as possible when buying groceries, clothes, nonessential items, and so on. It’ll keep your finances in check.
7. Say ‘no’ to credit cards: Do you have a habit of buying everything with your credit card? Yes? Then stop using it immediately. It’ll drag you more towards debt, if you can’t handle it properly. A vital tip in making a foolproof budget plan is to ‘say no to credit cards.’
8. Get ready for emergency: Saving for a rainy day is important when you plan a budget. Financial experts recommend to keep aside 3 to 6 months’ of living expenses to an emergency fund in case of any crisis like job loss, illness, unexpected bill, and so on.
9. Be realistic: Draft a realistic budget. Don’t make a budget that you cannot maintain. Also, try to live within your means and economize well. Don’t plan something that you cannot commit.
Lastly, don’t make a wish list, make a proper budget this year to get your finances back on track.
Finally, debts are not bothering you anymore as you have kicked them off through debt settlement. And now, you are relaxed, as you no longer have the debt burden on your shoulders, but what about your credit score? Was it the same as before? Well, you should be aware of the fact that debt settlement hampers credit score, as you’re unable to pay the full outstanding loan amount.
After the debt settlement process:
Consolidate your debts with a good Debt Consolidation company. Your debts will be disposed of successfully. But, you also need to pay attention to your credit score. Check out some tips to restore your credit score after a debt settlement program:
Your credit score reflects your creditworthiness. If you have gone through the process of debt settlement, then you should follow the above tips to rebuild your credit score in order to gain the confidence of the lenders.
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