Beating Broke

Personal Finance from the Broke Perspective

Free Credit Score Report

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Your Credit Score ReportIf you read this blog through a feed reader, or just haven’t visited in the last week or so, you likely haven’t seen the new banner that I’ve put up on the right side of the site.  It’s a lovely little banner (designed by me) for a White Paper / Report that I put together.  The subject, fittingly, is Your Credit Score.  In it, I write about what a credit score is, how it is used, and the steps that you can take to improve your credit score.

My hope is that the report will be help people learn what the correct usage of a credit score are, and what the benefits are of having a good credit score.  Which is why I’ve made it a FREE report.  All you have to do is sign up for the Beating Broke newsletter.

What is the newsletter?  Well, it’s a bit in the fledgling state, but the idea is that you will get the occasional update about the site with an article or two as well as some articles and information that won’t appear here on the blog.  I promise to not fill up your email inbox with the newsletter.  In fact, at the moment, I only plan on sending it out once a month at most.  More likely, bi-monthly.

The report is well worth it if you ask me.  I’m a bit biased since I wrote it, but I really do think it could be a very valuable resource for someone who doesn’t know much about credit scores.

Also, I want the report to get into as many hands as possible, so if you want a copy without signing up for the newsletter, just send me a note with the contact form and I’ll send you a copy.

Unused Credit Cards are Being Closed

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According to J.D. and several other places I’ve seen, Credit Card Companies are Being a lot more pro-active about closing unused Credit Card Accounts.  Why would they do that?  And why does it matter to you?

First, they do it because every open account costs them something.  It may not be much, but they still have to process the data and maybe even send out a statement.  Many have moved to not sending out statements on accounts that haven’t been used, but some still do.  Most importantly, any open account is an open credit line.  It’s a potential liability for the credit card company.  If you go from having no balance to maxing out a 5000 card, you’ve just added $5000 in liability to the company’s bottom line.  Not to mention that doing so is a likely red flag for impending financial trouble and that makes the liability a risky liability.  Any way you look at it, that isn’t good for the company.

Of course, if you continue to not use the card, it really doesn’t cost them much.  It’s just the potential that they are not willing to risk.  It’s a sign of increasing risk aversion on the part of the credit card companies.

So, why does all this matter to you?  Part of your credit score is based on your credit history.  The longer you have had an open account, the better it looks on your credit report.  It’s a sign of good credit management.  Another part of your credit score is the ratio of available credit to credit used.  So, if you have a $5000 credit line, and have only used $2500 of it, it looks better than if you had a $2500 credit line and had used $2000 of it.  If you have a credit card that you aren’t using, it’s adding to that unused portion of your available credit.  That’s good for your credit score.  But if the credit card gets closed, you don’t have that unused credit available anymore and your ration goes down.  And so does your credit score.

In both cases, the dip in your credit score is likely to be fairly small.  And it is likely not a huge problem.  But it is something you should be aware of if you had been planning on applying for any type of loan and have had a dormant credit card closed recently.  Also, if you are holding a card that you haven’t used recently and doesn’t have a balance, and want to keep it from closing, you can make a purchase with it once every couple of months to keep it active.  Just make sure to pay it off right away.

Want a Better Credit Score? Pay on Time.

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The number one, single most effective way to getting a better credit score is to pay your bills on time.  Followed closely by not missing any payments.  But if you’re following the first rule, you shouldn’t have any problems with the second rule, and you should be on your way to improving your credit score.

To begin with, you should know what range your credit score resides.  Lenders decide what rate you will get by your score.  Ever heard the term “A+ Paper”?  It’s not just a school essay grade.  Lenders use the term to indicate a loan that was lent to someone with a credit score in the highest rank range.  Typically, this is about a 730 or higher.

Before you go into despair, that is very attainable.  And it could save you hundreds if not thousands on your next loan.  But you’ve got to get there first.  So, go get your credit score.  Visit the annualcreditreport.com site and get your credit report from one bureau.  I say only one, because it works out fairly conveniently to get one from each of the three at about one per quarter.  Then you’ve got a running tally and they usually are pretty close.

In each case, you’ll probably have to pay a little extra to find out the actual credit score.  Be careful of the “trial offers” that are meant to trap you into a monthly fee.  If you have to sign up for one, make sure you remind yourself as often as possible that it needs to be cancelled before the monthly fee kicks in.

Now that you have your credit report and credit score, we can keep an eye on it to see how the changes you make will improve it.

Start paying everything early.  That means that if the bill is due on the 15th, you send it so that it’s there no later than the 12th.  In no way do we want the USPS to screw this up for us.  There can be forgotten holidays, weather delays, and even union strike delays, so we want to make sure that we can have a 2-3 day delay and still make it on time.  It’s the on time that is important.

So, why paying on time?  It accounts for nearly 40% of your credit score.  If you’ve been paying bills late, changing to paying them on time could increase your credit score by as much as 20%.  It’ll take a few months up to a few years to really kick in, but you should see a few points increase within a month or two.  And you can probably expect double digit increases if you’ve been regularly late.  It’ll just take some time for the on time payments to override the late ones.