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It’s something most of us have, but don’t know much about. We’re talking about credit scores. Credit scores play an important role if you’re looking to make a large purchase, like buying a house or car. Financial expert Robyn Thompson breaks things down and separates fact from fiction.

What is a credit score?

Your credit score can range from as low as 300 to as high as 900. While there’s no magic number, the following ranges are generally used by lenders.

  • 760-900: Amazing!
  • 725-759: Good job!
  • 660-724 Average.
  • 561-659: Some debt.
  • 300-560: Poor credit.

Keeping your credit score in check

Check your credit score annually

A check can reveal signs of identity theft or errors that appear on your report. Do this annually for both credit bureaus. Ensure that attempts have not been made to open credit cards, other loans, or mortgages in your name. And request any errors be corrected.

Monitor your payment history

Your payment history is the most important factor for your credit score. To improve your payment history:

  • Always make your payments on time
  • At the very least, make the minimum payment
  • Contact the lender right immediately if you can’t pay a bill
  • Never skip a payment – even if it’s in dispute

Use credit wisely

Don’t go over your credit limit and use less than 35 per cent of your available credit. Lenders view the use of maximum credit as a greater risk factor, even if you pay your balance in full by the due date.

Limit your credit applications and credit checks

A credit check is recorded as an inquiry by the credit bureau. If there are too many credit checks on your report, lenders may think you need credit urgently or that you’re living beyond your means by juggling credit.

Myths

Some of the most common credit myths are:

  • Your score drops if you check your own credit. Viewing your own report and score is counted as a “soft inquiry” and doesn’t change the score one way or another. On the other hand, “hard inquiries” by a lender or creditor can slightly lower your credit score.
  • Closing old accounts raises your score. Wrong. This might actually have the opposite effect because your credit history appears shorter. If you need to close accounts, shut down the new ones first.
  • Paying off a negative record takes it off your credit report. Negative records – collection accounts, late payments, etc. – will remain on your credit reports for up to seven years from the date of first delinquency. It will still have some effect until it is purged from your report by the credit reporting company.
  • Co-signing a loan takes the heat off you. No, it doesn’t. You are held legally responsible for joint or co-signed accounts. And activity on the joint accounts shows up on the credit reports of both account holders. You can end dual liability on joint accounts by having one party refinance the loan or persuade the creditor to formally take you off the account. Better yet, avoid joint or co-signed credit.
  • Paying off a debt boosts your credit score by 50 points. A myth. Because of the complexity of credit-score calculations, it’s almost impossible the effect one factor might have on points. For the best credit score pay your bills on time, lower your debts, and ensure inaccuracies are corrected. A proven record of sound financial management will have the most significant impact on your score.