Why you should care about your credit scores...

Credit scores directly affect most of your financial transactions, including:  buying a home with a mortgage, borrowing money to purchase a car, credit card interest rates, and even applying for a job.  Making sure your credit score is as high as possible is one of the easiest ways of saving money every month.

How credit agencies determine your credit score

Now that you have your credit report, the three main credit reporting agencies are Experian, TransUnion, and Equifax.  Since some lenders only report to one of these three companies, you will probably have three different credit reports and credit scores based on the different information each one has about you. 

Most companies that lend you money will report your activities (on time payments, non-payments, credit lines, etc.) to at least one of these credit agencies.  These credit agencies are private companies and are not owned by the government, most people think they are somehow owned by the government which is huge myth.

Your credit score is determined by the following estimated % breakdown:

• 35% Payment history

• 30% Outstanding debt

• 15% Length of your credit history

• 10% Recent inquiries on your credit report

• 10% Types of credit in use

Below is a table showing a sampling of possible different score ranges and how they can affect a mortgage payment:

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Once you've received your credit report, look at the percentage breakdown above and focus on the things that will help you increase your credit scores such as payment history, negative items, and outstanding debt.  

Some lenders will look at the scores from all three reports, while some might only look at one.  Remember, you don't lose any credit score points for checking your own credit report. 

You will lose some points if there a number of credit inquiries over time for applications such credit cards, auto loans, department store credit cards, etc. that you have initiated.  Think about this next time you get an offer for 10% off your purchase just for signing up for a store credit card, and just say no!  Only apply for credit cards if you actually need them, have less than four open credit lines, or are pretty sure you will get a large credit line when you get approved.

You should never apply for credit if you are not very confident that you will get approved. You might save $20 now, but you could lose much more than that later due to a lower credit score.  Plus if you forget to make payments, it will really negatively effect your credit score, and you might be charged late fees, etc.  Store cards usually carry the highest fees and interest!  If you need a credit card, we recommend getting the Applied Bank Credit Card because they will offer you a credit card based on your exact credit score and you can use the card anywhere that MasterCard is accepted.

Also, if you are shopping for a car or mortgage, try and keep all the inquiries to within four weeks because credit scoring companies will only treat all these as one "inquiry" on your credit report, instead of multiple inquiries.

Another key thing to remember is your credit score is not based on how "clean" your credit report looks.  You may have many things on your credit report that drag on for years, but remember these are good things since they show a long credit history.  As long as they don't show late payments, they are adding points to your credit score - because you have proven to be a reliable consumer who can pay back debts in a timely matter.  (Lenders are really looking for these types of people, consumers who take on debt and then pay it back on time.) 

Don't bother contacting old vendors and trying to close accounts since it might actually hurt your score! 

You can close accounts that are less than a year old, however we recommend focusing your energy on things that can really make a big difference.