When it comes to passing the creditworthiness test, one thing we all know is that lenders have a tough grading scale. We know if you pay your bills late, max out your credit cards or suffer a bankruptcy, your credit scores will likely get lower marks during the credit approval process. And if you do secure financing, you’ll pay dearly for it – in higher interest rates. To make the most of your credit, it’s important that you become score-smart.
In the spirit of March being National Credit Education Month, here are some lesser-known financial facts to help boost your Credit IQ and awareness to protect your scores.
- Lowering credit card limits can lower scores
While asking for a lower credit card limit can help you cap your spending, it could also increase your credit utilization percentage and lower your scores.
- Rushing to build credit could backfire
If you are a new credit user, rapid account buildup can look risky to lenders and hurt your credit scores.
- You are more than just one number
You don’t have permanent credit scores. Your scores are constantly changing based on the credit account information lenders send to TransUnion, Equifax and Experian. And not all creditors report to all bureaus.
- Lenders use different scoring models to determine your credit risk
There are score models for auto, mortgage, bankcard and personal loans. All use your credit report information but assess different levels of risk associated with the type of loan you are seeking. Your credit scores from TransUnion, Equifax and Experian are indicators of how you should fare.
- Doing your credit homework early pays off
If you’re thinking about taking on a mortgage, auto loan or line of credit, your credit scores can literally save you, or cost you, thousands of dollars. Make sure your scores are at their best and you won’t have any regrets.
- Many consumers are flying credit-blind
Sixty percent of U.S. adults have not reviewed their credit reports in the last year.
- Tooting your own horn ensures accuracy
Make sure your payment history on all your credit accounts is reported to all three bureaus: TransUnion, Equifax and Experian.
- Approximately 45 million Americans have a “thin” credit file or none at all
This means the credit bureaus do not have enough credit data to generate credit scores. If you’re just starting out and need to “fatten” your file, consider applying for a credit card, gas card or retail credit card.
CREDIT ERRORS & DISPUTES
- Credit report errors is the #1 consumer complaint
Of all complaints received by the Consumer Financial Protection Bureau in 2016, the highest percentage was about errors on credit reports.
- It can pay to dispute errors
Twenty percent of consumers who disputed errors on their credit reports saw their scores increase.
- Credit bureaus must respond to a dispute within 30 days
About 70 percent of disputes are acted upon within 14 days, according to the Consumer Data Industry Association (CDIA). However, if the dispute is resolved in your favor, it can take up to 30 days for your credit reports to reflect the removal of the error. Follow up on your disputes and check your reports for updates.
- Your credit profile follows you to work
At least 47 percent of employers check an applicant’s credit history before making employment decisions. Also, employers can request your consent to do periodic credit checks even after you’ve been hired.
- Unauthorized credit inquiries can spell trouble
Even one hard inquiry on your credit reports can knock a few points off your credit scores, and multiple inquiries could reduce your scores even more. There are exceptions – when you’re rate shopping for a mortgage or auto loan.
- Negative information has an expiration date
Late payments, paid tax liens and accounts in collection should drop off your reports in seven years, and bankruptcies in 10 years. Unpaid tax liens can remain indefinitely. If negative information that should be removed remains on your reports for lenders to review, it could raise questions in the loan approval process.
- Data breaches lead to fraud victims
One in four people who received a data breach notification letter from a retailer later became identity fraud victims.
- Identity thieves target taxes over credit cards
Tax- or wage-related ID theft makes up 45 percent of reported incidents – credit card fraud is 16 percent.
- Millennials are most likely to fall for an IRS scam
Millennials are six times more likely than older generations to give the scammer their credit card numbers, and twice as likely to share their social security numbers.
- Criminals target seniors’ finances
Financial scams targeting seniors are so prevalent, they’re now considered “the crime of the 21st century.”
- 3 million kids have their identities stolen annually
At least 50 percent are younger than six years old, and parents may not even know they’ve been exploited.
- Failure to respond to theft warning
A 2015 Ponemon Institute study found that more than one-third of consumers ignored data breach notification letters, doing nothing to protect themselves against identity fraud.
- Recovery takes precious time
The Federal Trade Commission (FTC) estimates that recovering from identity theft takes an average of six months and 200 hours of work.
Use National Credit Education Month as the catalyst to learn what’s driving your credit scores, which actions may be helping or hurting – and why. And if you’re not already actively monitoring your credit and personal information, March is a great time to start. Monitoring enables you to regularly review your credit reports and scores, dispute any errors or inaccurate information you find – and get alerts about changes or suspicious activity that may pose a threat to your credit or your identity.