Jon Arnold asked:


Considering how important your credit report is to you for a wide variety of reasons, including how aggressively your car insurance company will price your auto insurance premiums, it is almost amazing that more consumers are not in touch with what information is contained on their credit report. Most people are even less aware that there is an extremely high likelihood that your credit report contains errors, which will continue to be reported as fact forever until you dispute the information.

A credit score is a three digit number that is calculated based on a wide variety of criteria, where that single number is a key to prospective lenders as to your credit worthiness. As an example, a score of about 750 to 800 is an excellent score and you should be deluged with credit card offers because you are considered such an excellent credit risk. But a score of say 400-450 is incredibly poor, where businesses may not even accept CASH from you if they know your credit score.

What are the factors that will typically lower your credit score? There are several factors that are out of your control. While not necessarily lowering your credit score, it is not favorable to have less than a couple of years with the same company or less than 4 to 5 years living at the same address. Prospective lenders and therefore credit bureaus love stability, and having several years with the same company and living at the same address shows stability. If you have recently changed jobs or moved, that is out of your control but you will need to depend on other things to elevate your credit score.

If you have high balances on your credit cards, that will lower your credit score. This is true even if you make each and every payment on time and pay more than the minimum amount due each month. If your outstanding balance is more than about 30-35% of your credit limit, this is considered a negative factor. Of course, it is also negative if you have late payments, and having a consistent history of late payments is very bad for your credit score.

If you have a lot of “hits” on your credit report, that is negative. Every time a prospective lender like a department store or credit card company looks at your credit report, it is “hit” and keeps a record that such an inquiry was made. The more of these types of “hits” you have on your credit report, the lower your score will be, since the theory is that you are looking to expand your credit abilities, perhaps beyond your financial abilities. It is additionally bad to have a lot of hits without a corresponding number of new accounts opened, which probably indicates that you were turned down for credit.

Having insufficient credit history can also lower your credit score. Many college students find this after they graduate and start to establish their credit. The prospective lender does not have enough credit history information to make a valid decision about your credit worthiness. For this reason, it is a great idea to get credit established early, like while in college.

There are many other factors, but one of the things you can see is that almost anything you do from a financial standpoint affects your credit score. One of the very best things you can do is get a copy of your credit reports (all three of them) and scan them carefully and thoroughly. Studies indicate that it is very likely there are errors being reported, and getting those errors corrected can raise your credit score tremendously. These errors will not “self correct” over time, you need to dispute the information with the credit bureau that is reporting it.



Norman