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Credit Reports and Scores

Building a Credit Score from Scratch

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Building a Credit Score from Scratch

There is no shortage of articles and ideas online clamoring to offer you tips and pointers about how to best manage your credit. You can even find videos, radio shows, and even television shows from many self-proclaimed "gurus" who are quick to share their credit secrets with you. Add to this flood of so-called professional credit advice the advice you may have received from your family, friends, and acquaintances and before long your head will be spinning with dozens of contradictory credit improvement strategies.

Unfortunately, the truth is that many self-proclaimed "professionals" and even your loved ones can give really bad advice when it comes to your credit. Most of this advice is likely given with a very well-meaning spirit; however, bad credit advice can hurt you even if the damage is unintentional. It is important to be careful whose advice you follow when it comes to your credit, especially when you are building credit for the very first time. Here are 3 tips to help you build great credit from scratch.

Tip #1: Do Not Assume Anything

If you are preparing to build credit for the first time you may genuinely believe that your credit reports are completely blank. However, assuming that this is the case without verification is a mistake. You should begin by checking all 3 of your credit reports.

You are entitled to a free copy of these reports every year from AnnualCreditReport.com. You can also access your 3 credit reports and 3 scores (if they exist) via credit monitoring services such as those found at GreatCredit101.com. You should develop the habit now of checking your credit reports often. It is ultimately your responsibility to monitor your credit reports to be sure that they remain accurate and error-free.

Credit Expert Advice: If you discover errors on your credit reports then you have the right to dispute those errors on your own or you can hire a reputable credit restoration company to assist you.

Tip #2: Establish Revolving Accounts

After you have checked your credit reports, if they are indeed completely blank, then you should consider opening a few credit card accounts - aka revolving accounts. Secured credit cards are a great place to start when you have zero established credit since these types of credit cards offer less strict qualification standards than most unsecured cards will offer. In other words, qualifying for a secured credit card is an easier process than qualifying for unsecured credit cards.

Credit Expert Advice: Just remember, it is absolutely essential that you keep all of your credit card payments on time every single month and you should never revolve a credit card balance from month to month either.

Tip #3: Establish an Installment Account

Credit scoring models such as FICO like to see that you know how to manage a variety of account types. Consumers who have a good mix of accounts showing up in their credit history can potentially be rewarded with higher credit scores. However, a problem which consumers with no established credit history face is the fact that it can be difficult to qualify for certain types of loans with little to no credit. Your solution? Enter the credit builder loan.

Many local credit unions will offer credit builder loans as a means for their customers to rebuild or build credit for the first time. Credit builder loans are generally issued for a low dollar amount ($500 - $1,000) and the funds are held in a savings account while you make the monthly payments to pay off the loan. Once the loan has been paid in full the funds are released to you, plus any interest earned, and if you managed your account properly then you will probably have around 6-12 months of on-time payment history showing up on your credit reports.

Credit Expert Advice: If you are thinking about applying for a credit builder loan product be sure to ask the credit union if they will report the account to all 3 credit bureaus.

Tip #4: Ask a Loved One for a Favor

The final way to establish credit from scratch which I will mention is to ask a loved one or a family member to add you as an authorized user to an existing credit card account. Though it is true that authorized user accounts will not show up on your credit reports 100% of the time, in the majority of cases when you are added as an authorized user to a credit card the account will show up on your 3 credit reports within a few months. Plus, if you are a parent then authorized user accounts represent a great way for you to help your children establish credit without dipping your toes into the very dangerous waters of co-signing.  

Credit Expert Advice: Before being added to any account as an authorized user you should be sure that the account has a flawless payment history and a low or $0 balance. Otherwise, being added as an authorized user could backfire and hurt instead of help your credit.


Michelle Black is an author and leading credit expert with over 13 years of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, budgeting, and identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here. 

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Scorecards: Why It Might Be Impossible for You to Earn an 850 Credit Score

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Scorecards: Why It Might Be Impossible for You to Earn an 850 Credit Score

Credit scores run the world. Okay, maybe that is an overstatement, but the truth is that your credit scores will have a massive influence over your life. In fact, your credit scores exert nearly as much control over the financial quality of your life as does your income.

If you are wise then you already know that learning what it takes to keep your credit reports and scores in stellar shape is a very important goal - one of the most important wealth building goals you can make for yourself. Yet if you are a natural born overachiever and are shooting for the stars with your credit scores you might find yourself a bit disappointed. Achieving the ever elusive perfect credit score of 850 might actually be downright impossible for you right now thanks to a not-so-well known component of credit scoring models - the scorecard.    

What Is a Credit Scorecard?

Behind the scenes of every credit scoring model there are multiple scorecards at work. Scorecards evaluate the information on your credit reports and turn that information into credit score points which are added up and delivered to a lender in the form of a credit score. The way that scorecards evaluate the information on your credit reports is by asking questions - questions such as "Are there any late payments present?" The answers to these questions are known as "characteristics." If the answer to the previous question about the presence of late payments was "yes" then you would earn less points to be added to your overall credit score than those which you would earn if the answer to the question was "no."

Scorecards are the nuts and bolts of a credit scoring system. They set the rules for how your credit scores are calculated. Without scorecards it would be impossible for a lender to ever get a copy of your credit scores.

How Different Scorecards Impact You

As mentioned above, every major credit scoring model features multiple scorecards. Depending upon the information contained in your credit reports you are assigned a specific scorecard each time your credit scores are calculated. When FICO releases a new credit scoring model, such as the most recently released FICO 9, what most consumers and even financial professionals do not realize is that - thanks to the existence of scorecards inside of the scoring model - all consumers credit reports are not graded according to the exact same scale. Instead, scorecards will separate consumers into like or homogenous groups and those groups will have their credit reports scored differently.

For example, there are separate scorecards for consumers who have filed bankruptcy or those who have delinquencies (late payments) present on their reports. There are scorecards for consumers with thin or young credit files (not many accounts) and files for consumers without delinquencies as well. While FICO and VantageScore do not disclose the actual types or numbers of scorecards working behind the scenes of their credit scoring models, it would not be unusual for there to be 10 or more scorecards in existence for a single credit scoring model.

The most common credit scoring range for consumers, especially for the most popular FICO and VantageScore scoring models, is 300 - 850. Therefore, if you ask were to ask most credit experts what is the highest credit score you could possibly earn you would probably receive "850" as an answer. Not so fast. 850 may be the highest credit score available, but that does not necessarily mean that an 850 is available to you, at least not at immediately. If you have a bankruptcy on your credit reports, for example, then you would find yourself being scored by a bankruptcy scorecard.

Scorecards designed for those with derogatory information do not have the same maximum credit score possibility, 850, as those scorecards without any derogatory information would have. As a result, if you did have a past bankruptcy on your credit reports then achieving an 850 credit score would be impossible for you until the bankruptcy (and any other derogatory information) was removed and your report was able to be scored by a scorecard which actually included an 850 maximum credit score as an option.

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Michelle Black is an author and leading credit expert with over 13 years of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, budgeting, and identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here. 

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5 Proven Ways to Earn Better Credit Scores

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5 Proven Ways to Earn Better Credit Scores

Achieving and maintaining great credit should be a lifelong commitment. After all, your credit reports and scores exert a tremendous amount of influence over your life and finances. Your credit can impact your ability to purchase a home, purchase a vehicle, land your dream job, and even your ability to pay for your child's college tuition. When you struggle with bad credit you are often either turned down for the things that you need or you are forced to pay much more than you would be required to pay if your credit was in better shape. Check out these 5 proven credit score improvement tips to help you begin your journey down the path toward a better financial future.

1. Set up automatic payments.

Payment history is the #1 factor considered by credit scoring models like FICO and VantageScore. If you want to reach stellar credit scores then it is absolutely essential that you pay your credit obligations on time, every single time. Setting up automatic payments for your bills, especially credit card payments which tend to fluctuate from month to month, can serve as a safety net to protect you from late payments due to busyness and oversight.

2. Pay down credit card debt.

The second most important factor considered by credit scoring models is probably the percentage of your credit limits which are being used. This is also referred to as your revolving utilization ratio and it is calculated by measuring the relationship between your credit card limits and the balances you owe on those accounts. For example, if you have a credit card with a $5000 limit and you owe $2500 on the account then you are at a utilization level of 50%. The higher your revolving utilization ratio climbs the lower your credit scores will fall. Paying down your credit card debt, even by a mere 10% at a time, can easily start to push your credit scores back uphill.   

3. Open new credit strategically.

Another important credit score factor is the age of the accounts on your credit reports. Both the average age of your accounts and the age of your oldest account are considered when it comes to credit score calculations. Opening new accounts too frequently will lower the average age of the accounts on your credit reports and, as a result, could potentially have a negative impact upon your credit scores. Therefore, it is best to open new credit accounts only when necessary and never because you simply want to score a 15% discount off your purchase at the mall.

4. Pay attention to your credit "mixture."

Credit scoring models reward people whose credit histories show that they have a history of managing a variety of different types of credit accounts. Therefore, if you have only 1 type of account on your credit reports - such as credit cards - then you are probably missing out on some potential credit score points. Maintain a variety of account types (i.e. auto loans, mortgages, installment loans, credit cards, etc.) over time and you could see a potential credit score improvement.

5. Stop having your credit pulled too often.

Any time your credit reports are pulled a record of the access, known as an inquiry, is placed upon your credit reports. Some inquiries, though not all of them, have the potential to damage your credit scores. Of course inquiries are only worth 10% of your FICO credit scores and around 5% of your VantageScore credit scores so they are not a huge factor considered during credit score calculations. Still, it is wise to be very selective about who you allow to pull your credit reports and when you allow them to be pulled. (Note: You never have to worry about checking your own credit reports. In fact, you should check them often via AnnualCreditReport.com or a credit monitoring service which includes your credit scores. These types of "soft" inquiries will never hurt your credit scores.)

credit-expert-michelle-black

Michelle Black is an author and leading credit expert with over 13 years of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, budgeting, and identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here. 

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5 Perks You Can Land If You Have Great Credit Scores

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5 Perks You Can Land If You Have Great Credit Scores

Everyone loves earning perks, benefits, and bonuses, right? Credit card reward programs, brand loyalty programs, and even grocery store discount cards are built upon this very concept. However, while most people can easily recognize the value of a credit card rewards program there are still many consumers who do not see the value of having high credit scores in the same light. That is a costly mistake.

The truth is that great credit scores can help you to score a lot of awesome perks. Check out the list below to help you start viewing the potential value available to you by maximizing your credit scores.

1. Saving with lower insurance premiums.

When you have excellent credit scores you can secure lower interest premiums. You may not be aware of this fact, but insurance companies routinely check credit scores when you apply for a new policy. In fact, your credit scores can even be more important than your driving record when it comes to determining how much an insurance company will charge you for an auto policy.

Earning great credit scores can pay off every single month in the form of money saved on insurance premiums. If your credit has improved since you took out your current insurance policy then it would be very advisable to talk to your agent or shop around to see if you now qualify for a better price on your insurance coverage.

2. Saving on deposits.

When you open a new utility account it is often common practice for the utility provider to check your credit in order to determine whether or not you will be required to put down a deposit for service. As a result when you apply for new electric service, gas service, cable service, or internet service having less than stellar credit scores can cost you. Additionally, when you apply for a new mobile phone account your credit will again be consulted not only to determine whether or not you will be required to put down a deposit for service but to also see whether or not you qualify for a new account at all.

3. Saving interest costs every month.

Did you know that financing a home with a questionable credit rating could realistically cost you nearly  $85,000 extra over the course of the loan? Purchasing a home with a credit score of 620 could cause you to pay an extra $235 per month on a $300,000 mortgage compared to what someone with a credit score of 740 would likely pay for the same loan. Over the entire course of a 30 year mortgage that is an extra $84,600 you would pay - a pretty expensive penalty for not having great credit scores.

If you have already overcome credit issues and have rebuilt great credit scores then you should take a look at your current loans (i.e. mortgage, auto, credit cards, personal loans, etc.). You may just qualify to refinance some of those loans at a lower rate and save yourself a bundle on interest.

4. Saving on vacations.

Having great credit enables you to land better credit card offers. Many credit cards offer exciting perks such as 0% interest on purchases for 12 months, generous airline reward miles which can be redeemed for free airfare, or even 0% financing with a specific resort or cruise line. However, the most attractive credit card offers are generally reserved for those consumers who have excellent credit scores. Achieving excellent credit scores can open the doors for you to cash in on some amazing vacation deals.

5. Saving face.

If you have ever applied for financing in the past and been turned down then you probably can recall a vivid memory of the red hot embarrassment which crept its way up your face when you heard the words, "I'm sorry, but your application was denied." Simply put, bad credit can be very bad for your self esteem and your sense of self worth, especially if you are the primary bread winner for your family. It is well worth the hard work required to build better credit scores just for the pay off of the added confidence you will receive once you know you never again have to worry about being turned down due to bad credit.

Earning Better Credit

It is completely possible to start earning better credit right away. However, just because it is possible does not mean that the process is easy. Earning better credit takes a solid plan, hard work, consistency, and patience. In fact, it is very advisable to seek the help of a reputable credit professional.

CLICK HERE to schedule a no-obligation credit analysis with a HOPE4USA credit expert. Our team can help you build a plan to achieve the better credit you deserve - either on your own or with our help every step of the way. You can also CLICK HERE to download our free HOPE4USA Credit Repair Tool Kit. 

hope4usa-michelle-black-credit-expert

Michelle Black is an author and leading credit expert with over 13 years of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, budgeting, and identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here. 

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