How to Fix a Credit Score

If you’ve ever run into financial trouble, you know how frustrating it can be when that information shows up on your credit report. Lenders use the information on your credit report to assess your risk as a borrower, and late or missed payments could make you seem like more of a risk. In addition, your credit score may be negatively impacted.

Luckily, you have some control over your credit score. Just like missing payments and not paying your debts can bring down your score, you can do things to build it back up. It takes some effort, but it is not impossible.

1. Understand your score.

The first step on the path to positively affecting your credit score understands what goes into it. A credit score is based on several different factors in your credit history, including your payment history, how much you owe, how much credit is available to you, the length of your credit history, and the types of credit you have.

However, two things influence your credit score the most: on time payment of your bills and your available balance.

2. Get your debt under control.

Start with getting a handle on your payments and total debt. If it’s tough to keep up with credit card bills, call the card issuer to explain your situation and try to negotiate a payment you can afford. Once you have that in hand, try to keep a balance of less than 30 percent of your available credit limit.

3. Check your credit report.

Start making a habit of checking your credit score and looking through your credit report.

4. Apply For Secured Credit Cards

If you’re building your credit score from scratch, you’ll likely need to start with a secured credit card. A secured card is backed by a cash deposit you make upfront; the deposit amount is usually the same as your credit limit.

You’ll use the card like any other credit card: Buy things, make a payment on or before the due date, incur interest if you don’t pay your balance in full. Your cash deposit is used as collateral if you fail to make payments.

You’ll receive your deposit back when you close the account.

Secured credit cards aren’t meant to be used forever. The purpose of a secured card is to build your credit enough to qualify for an unsecured card – a card without a deposit and with better benefits. Choose a secured card with a low annual fee and make sure it reports to all three credit bureaus, Equifax, Experian and Transunion.

Educating Your Teens About Credit

As children grow into teens and young adults, they need to start learning about building good credit. Not having the proper guidance can lead young people down a path of building debt and poor money management. Starting at home with some principles for good financial management is a great way for parents to help their children grow into responsible adults.

To Begin

Don’t start out with a credit card. The ease of using a credit card makes it far too easy to abuse. Instead, begin by teaching your children how to reconcile their bank statements with a debit card or checks. To help them when they first start out, link your bank account with theirs to avoid surcharges if they have difficulty with the lessons. Remind them to keep their receipts and always be mindful of spending only what they have available.

Have your children take responsibility for their car insurance or other bills that are directly related to their finances. Letting children have this experience of managing an amount while keeping in mind they have bills to pay is a great starting point for making good financial decisions.

Remind children about safety when using a debit card and have them practice watching their bank accounts for fraudulent charges. Encourage them to use an old fashioned record and write every purchase down so they understand the monetary power of a swipe. It’s much easier this day in age to get carried away with swiping a card for small charges that add up quickly. Their card usage should not be based on the “Accepted” notice after they complete a transaction.

Credit Cards

Once you feel comfortable that your children are paying attention to their spending habits and remaining within their limits, it’s time to start building credit. Starting out early with good credit card habits can really give a child a step up when it comes to larger purchases later in life. Holding a credit card is more than an easy and secure way to pay for goods. It will build a credit score to protect your child’s future.

Prepaid Cards

You may not feel comfortable letting your child start out with a debit card. The potential for fraud and overdraft charges is serious. It could also pose a problem if your child has access to a savings account that is intended for the future. Instead of letting him or her access a larger sum, obtain a prepaid card. The card will act as cash that is loaded in a predetermined amount by parents.

Many common credit card companies offer prepaid cards that include features like parental controls (to prevent your child from shopping certain locales), mobile features, and discounts for certain brands. You may encounter fees with the use of prepaid cards, which is a major drawback to using this form of payment. From activation fees to balance inquiry fees and maintenance fees, you might end up spending more than necessary on this form of card.

Joint Credit

If your child is under the age of 18, he or she will not be able to apply for a card without parental approval. As a step toward credit independence, try a joint credit card that is cosigned by a parent. You can choose a low limit level to ensure your child doesn’t immediately start overspending.

Take time when the credit statement arrives each month to go over the activity and let your child know which purchases were valid and which were superfluous. At this point, a card should only be used for purchases that you and your child have agreed upon: emergencies, school-related activities, or buying something they have already saved money to obtain.

Authorized User Cards

Another option is to let your child have a card on your account as a secondary or tertiary cardholder. Sign them up for a parent’s card that the parent can benefit from, too. Make sure to carefully monitor statements for any purchases made on your account to prevent poor money management.

It’s easy for a child to think there are no consequences if he has access to a parent’s account with high limits. Set certain limits on what your child can purchase or how much he or she can spend per month to ensure the card is not abused. Go over your child’s spending with him every month.

Credit for 18 Year Olds

When a child heads off to college, having a credit card can help manage daily expenses in a secure way. Be a part of this first independent credit card venture, if possible. Helping your child learn how to avoid carrying a balance, as well as understanding how to prepare for times when carrying a balance is unavoidable is important. Having to learn these lessons without a parent’s guidance can be intimidating and difficult.

Hopefully the lessons of carrying other cards will pay off when your child opens his or her first independent credit account. Make sure you ask about your child’s credit card habits regularly. If you support your child financially through school, having these continuing conversations is easier and a good way to refresh your child’s memory about good money management.

Managing Consequences

Teaching your child a lesson can be difficult if your child has a hard time spending appropriately. While you don’t want to bail your child out from poor spending decisions, carrying a balance can lead to a financial obligation the parent must ultimately take responsibility for. Go back over a few steps of card management skills if your child mistakenly spends more than he can afford.

Overspending once or twice is understandable when a child starts learning about money management. Consider another payment method if your child has too much difficulty in remaining within appropriate spending limits. Letting spending go unchecked is a recipe for financial disaster. It can lead to your child having to carry a balance that can’t be paid off and that will weaken his or her credit score.

Don’t let a child off the hook for any surcharges or debt incurred, however. Being responsible for paying off debt before your child can use the money for anything else is a good way to let him or her know there are repercussions for poor spending decisions.

Credit Score Comparisons

Credit scoring seems like it should be a straightforward concept. All of the financial information provided to consumers, however, is confusing. You may see multiple scores and various criteria used by banks, credit card companies, and other lenders. What is your real credit score? Read on for an overview of credit scores and what they mean for the general population.

Scoring methods all generally use statistics and analysis to determine consumer credit payments over time. They are all used by lender and financial institutions to facilitate providing credit, loans, and mortgages to individuals. Payment history, overall debt, number of cards, and other information is used in most scoring models.

The History of Credit Scores

Until the 1970s credit scoring systems were not the prescribed way to determine credit viability. Financial institutions used human metrics such as a personal relationship with the client, body language, and initial conversations. The financiers would often share information across the industry when they had mutual clients. Results were often misleading and financial institutions themselves suffered from loss associated with unreliable consumers.

Equifax, now a big 3 credit bureau, paved the way for future credit information collection as the first company operating with the goal of collecting consumer data. TransUnion followed Equifax in the 1960s. Data collection in the 1960s included irrelevant information about personal habits, vices, and opinions. The level of misinformation and distrust by the general population eventually led to the passing of the Fair Credit Reporting Act in 1970, which regulates data collection and circulation of consumer credit information.

FICO (Fair Isaac Corporation) is known as the universal credit scoring method. The three main credit bureaus in the US all use FICO scores in their credit reporting documents. More than 80 countries around the world also use FICO information to improve business processes. FICO helps consumers manage credit health around the world through their analytics and reporting information.

The company was founded in 1956 and now 95% of the United States’ largest financial institutions utilize FICO information in day-to-day business. One hundred billion FICO credit scores have been sold since the company began scoring.

FICO began sharing credit information with businesses in the late 1950s when the company began. In 1987 the FICO scores of individuals became more widely available to lending professionals. It wasn’t until 2003, with the passing of the Fair and Accurate Credit Transactions Act, that credit information was made freely available to consumers once a year.

VantageScore began in 2006 as a collaboration between the three main credit reporting bureaus. Experian, TransUnion, and Equifax developed VantageScore to improve their techniques for analyzing data. The company focuses on accurately providing consumer information in the context of relevant economic data. They are dedicated to finding a solution and standardizing certain consumer data sets across the three bureaus.

The system has been adopted by large financial institutions and lenders as an alternative to FICO. Roughly 10% of the total market uses VantageScore currently. VantageScore “credit report card” is available to consumers for free as of 2013. The consumer market will likely see an increase in the use of VantageScore as a direct competitor of FICO.

Why, if all of this information is regulated and shared throughout the industry, do we receive different scores from each credit reporting agency? The truth is that all of the major credit bureaus – Equifax, TransUnion, and Experian – look at credit information differently. The companies receive your relevant financial information at different times. If a credit card statement hasn’t been paid off when the data is sent to a bureau, your credit score might be impacted by that information.

Financial institutions actually rely on numerous scores to determine their individual criteria for providing credit. FICO, itself, offers more than 50 unique scores. Consumers who receive credit reports only see a selection of information that is determined to be most helpful. These consumer-directed scores are often completely different from the numbers a financial institution will evaluate. They are strictly educational in nature and used to provide consumers with a sense of overall credit worthiness.

Individual companies may also implement their own scoring equations. Ultimately, there may be different scores from FICO, VantageScore, Experian, Equifax, TransUnion, and independent companies. So many numbers floating around makes it difficult for the average consumer to understand which numbers to evaluate for personal finances.

Where to Look

Those looking to get a sense of overall financial standing can look at any of the scoring methods for a reasonable picture. If you are trying to determine how your score will appear to another party, a lender or bank, you may have more difficulty finding accurate information. Ask your lender which scoring method was used for your situation to determine where to find specific numbers associated with a loan or financial inquiry.

Your true, accurate, real credit score will not be found by evaluating one score. The formulas guiding credit scoring vary slightly, giving more or less weight to factors like credit history or outstanding debt. Most of us do not need a 100% accurate credit score. Personal finances and a general understanding of your situation can be attained through any of the major credit scoring companies.

More information

If the credit-scoring methodology is still confusing to you, you’re not alone. The process is full of nuances and statistics that those who are not in the field of finance often find hard to comprehend. Contact credit services and counselors for more information about your unique situation. Consumers sometimes need help determining methods of improving credit scores, as well as contesting inaccurate information that can drive a score down across all scoring models.

Look at credit reports from each of the 3 bureaus at least once a year. Any information that is inaccurate or misleading may need to be addressed by you, the consumer, or a credit repair specialist. Finding a company that specializes in credit law will provide you with peace of mind that your credit score is in the hands of individuals who know what can legally be done to improve your credit score.

Is your bad credit holding you back from getting approved for credit cards, personal loans, auto loans, or the mortgage of your dream home? Are you struggling to make payments, getting denied loans, or even worried that your poor credit may prevent you from getting a job?

We at Park View Credit know how important it is to have the best credit possible. This is why we have helped thousands of Americans repair their credit with effective and affordable credit services. Our guaranteed services are affordable and come with the same level of service as the nation’s leading law firms.

We never let our members think that bad credit is something they have to live with. Park View Credit knows the complicated world of credit, and we’re here to help.