Everyone is seemingly obsessed with good credit and with good reason. Oxford dictionary defines credit as, “The ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future.” In 1946, the first credit cards were issued under Diner’s Club, and by 1951 they had issued over 20,000 cards. A new age of credit had begun. In this article we will discuss some credit basics. Acquiring and maintaining good credit is first and foremost about you earning the trust of lenders. As the scripture goes, “A good name is worth more than gold.” That was true thousands of years ago, and it’s still true today.
In the world of credit reporting there are two kinds of credit. We have soft credit and hard credit. Soft credit is for qualifying for services like bill payment and cell phones. These are normally done in-store when you are making a purchase of a cell plan. These soft credit pulls do not affect your history of your credit. These scores do not improve when you have made a payment on your plans. They only affect your credit when you are on a late payment. They go on your file when you have had your bill go into collections. Not only do phone bills do this; but think of ambulance services. If you have to pay for them and you don’t, this will go on your history; along with the date.
Hard credit scores are much different. A lot of companies offer free credit scores when processing for loans. However, some companies do in fact pull hard enquiries. If you are applying for a loan it will have negative impacts on both Transunion and Equifax scores. Your Equifax score may be lower than Transunion and that is because of their particular scoring algorithm. Asking for too many loans within a short period of time will send red flags to your file. We will give a few suggestions on how to pull your score with minimal negative impact.
Some free credit score sites have deals worked out with Transunion that they will not negatively affect your credit score when pulling your score. With Equifax though it could be different, so always check twice and read the fine print before authorizing. That is why a lot of the loan companies offer reward programs, in the industry, this is called leveling up; i.e. Mogo Inc. in Canada. Hard credit pulls.
Remember that lenders and scoring companies will look into your file and will show the percentage of the loan paid off. The amount of credit you have that is utilized can also have a big impact. If you have a $1,000 credit limit and you are using $999 of that credit line, your score can go down. But if you pay off all but $200 or so, and keep it paid up, your score goes up considerable. Also remember too, they will look at the amount of payments you have made on the loan. They look at the percentage of the loan that is remaining. This way they can see based on your income if you are able to pay off the new loan you are taking. This is another reason why a lot of companies have level up. This keeps you with the same company and they can keep track easier of your payments.
In your report you will see how many payments are remaining on a given account. Thus, competition will happen and you’ll be receiving offers in the mail once your score improves. Stay in your file for at least two years. So, remember this. A lot of this is because of loan times it takes to pay off the loan. We have seen that some hard scores are removed after 12 months. If you hit your credit score too many times that will send a flag for the next time. It sends a signal that you have been looking for a loan and could be accepted soon by many companies. So, a loan company may look at that and think that you will have too many loans out at once. Any red flags send out signals that make loan companies uncomfortable.
If you are running into trouble; it is best to not settle with the credit company that you have the loan from. Try to pay off the loan in full. This is important in your loan history as it will show that your loan has been paid off. You can work this out with the collector. You can arrange a late payment plan and stretch it out as long as possible. Then when it is time to pay it off try and work out a deal with the creditor supervisor to clear your file. This is important for both parties because they have paid to represent your file. Collection agencies may offer a settlement offer so be careful of that. Any incomplete loan will leave a nasty note on the file. There are rebuilding programs. When you have been struggling with your debt and score you can enroll in specialized programs. These programs may not necessarily give you a loan, but they could work out a savings program for you and negotiate settlement terms with debtors. Each payment you make will establish a system of trust that lenders require and which will raise your credit worthiness.
Hopefully, these tips will help you improve your credit score to buy your first home, buy a new car, or to get a personal loan. Remember you can use sites like Credit Karma in the US and Borrowell.com in Canada. They are a great resource for you to review your score. We also recommend that you shop around and look locally. A lot of companies have branches in local cities. So not everything has to be done online. Thank you for spending the time to read this article. We hope that you browse around our other articles on our blog.
– Michael, Brego.com Contributor