Why Does My Credit Score Matter?

Woman holding her credit reportYour credit score is made up of three numbers, serving as an indicator of your financial history, wellness and responsibility. These three little numbers can spell the difference between approval and rejection for a mortgage, a job, a rental unit and so much more.
We have outlined how your credit score is calculated, why it matters and steps you can take to improve your score.

How is my credit score calculated?
There are three major credit bureaus in the U.S.: Experian, TransUnion and Equifax. Each one collects and shares information about your credit usage with potential lenders and financial institutions. Most lenders use this information along with the FICO scoring model to calculate your credit worthiness. Some lenders use the VantageScore model instead of FICO.

While there are several slight differences between the FICO and the VantageScore formulas, both scoring models look at the following factors when calculating your score:

  • The age of your credit
    How long have you had your oldest credit card? When was your first loan? An older credit history generally boosts your score.
  • The timeliness of your bill payments
    Are you paying all of your monthly bills on time? Chronic late payments, particularly loan and credit card payments, can drastically reduce your score.
  • The ratio of your outstanding debt to available credit
    The VantageScore formula views consumers with a lot of available credit as a liability, while the FICO formula considers this a point in your favor.
  • The diversity of your credit
    Lenders want to see that you have and have had several kinds of open credit. For example, you may be paying down an auto loan, a student loan and using three credit cards.
  • The trajectory of your debt
    Are you accumulating new debt each month, or slowly working toward paying down every dollar you owe?
  • Your credit card usage
    Financial experts recommend having several open credit cards to help boost your credit score, but this only works if you actually use the cards and pay off your bills each month. It doesn’t help much to have the cards sitting in your wallet.

How does my credit score affect my life?
Your credit score serves as a gauge for your financial wellness to anybody who is looking to get a better idea of how responsible you are with your financial commitments.
Here are just some ways your credit score can affect your day-to-day life:

  • Loan eligibility
    This is easily the most common use for your credit score. Lenders check your score to determine whether you will be eligible for a loan.
  • The larger the loan, the stricter the requirements
    A poor credit score can hold you back from buying a house, a car, or getting a personal loan at Advantage One Credit Union.
  • Interest rates on loans
    Here too, your credit score plays a large role in your financial reality. A higher score can get you a lower interest rate on your loan, and a poor score can mean paying thousands of extra dollars in interest over the life of the loan.
  • Employment
    A study by the Society for Human Resources Management found that 47 percent of employers look at the credit scores of potential employees as part of the hiring process.
  • Renting
    Many landlords run credit checks on new tenants before signing a lease agreement. A poor credit score can prevent you from landing that dream apartment or it can prompt your landlord to demand you make a higher deposit before moving in.
  • Insurance coverage
    Most insurers will check your credit before agreeing to provide you with coverage. Consumer Reports writes that a lower score can mean paying hundreds of dollars more for auto coverage each year.

How to improve your credit score
If you’re planning on taking out a large loan in the near future, applying for a new job, renting a new unit or you just want to improve your score, follow these steps:

  • Pay your bills on time
    If you have the income to cover it but find getting things paid on time to be a challenge, consider using automatic payments.
  • Pay more than the minimum payment on your credit cards
    Your credit score takes the trajectory of your debt into account. By paying more than just the minimum payment on your credit cards, you can show you’re working on paying down your debt and help improve your score.
  • Pay your credit card bills before they’re due
    If you can, it’s best to pay your credit card bills early. This way, more of your money will go toward paying down your outstanding balance instead of interest.
  • Find out if you have any outstanding medical bills
    You may have an unpaid medical bill you’ve forgotten about. These can significantly drag down your credit score, so be sure to settle any outstanding medical bills as quickly as possible.
  • Consider debt consolidation
    If you’re paying interest on multiple outstanding debts each month, you may benefit from paying off your debt through a new credit card that offers an introductory interest-free period, or from taking out a [personal/unsecured] loan at Advantage One Credit Union. This way, you’ll only have one low-interest or interest-free payment to make each month. (Note: If you’ll be applying for a large loan within the next few months, it’s better not to open any new cards.)

It’s crucial that you make the effort to improve and maintain your credit score. It’s more than just a number; it will impact your financial wellness for years to come.

Your Turn:
How do you keep your credit score high? Share your best tips with us in the comments.

Learn More:
discover.com
fool.com
nerdwallet.com
thebalance.com

How To Dispute An Error On Your Credit Report

Woman on phone with credit bureauQuick-what’s your credit score?
As a financially responsible individual, you should be checking your credit on a regular basis. You can do this by signing up for free credit monitoring on a reputable website like CreditKarma.com, requesting your annual complimentary credit report from AnnualCreditReport.com and reviewing your monthly credit card statements.

If all goes well, your report will hold no surprises and your score will be in excellent shape, or steadily increasing. Sometimes, though, you may find an error in your report. It might be a sharp decline in your score when you know you haven’t changed your spending or bill-paying habits, a large transaction you’re sure you’ve never made or an unfamiliar line of credit. While it can be disconcerting to find a mistake in your credit report, the good news is you can contest errors like these and fix your score.

Mistakes you may find on your credit report
Credit report errors are quite common. In fact, 26% of participants in a study by the Federal Trade Commission found at least one error on their credit reports that brought down their score. A lower score can mean getting hit with higher interest rates on loans, and can prove to be an obstacle when applying for a new line of credit or a large loan.

Most of these errors can be traced back to clerical mistakes, though some are caused by a lack of action on your part, or by criminal activity.

Credit report errors include the following:

  • You’re mistakenly identified as someone with a name similar to yours.
  • A credit account was never included in your report, weakening your perceived credit worthiness.
  • Your loan or credit card payments were applied to the wrong account.
  • A legitimate credit account or debt has been reported and recorded multiple times.
  • Your name is still linked to your ex-partner’s accounts and debts.
  • Identity thieves have used your name and credit file to open accounts and take out loans you knew nothing about – and it’s unlikely they have been making payments on those loans.

To avoid credit report errors, make sure to use your legal name on every line of credit you open, to remove your name from any accounts you are no longer associated with and to have all of your creditors report your open accounts to the major credit bureaus. As mentioned above, it is also crucial that you monitor your score to find mistakes as quickly as possible.

3 steps to disputing an error

If you’ve spotted an error on your credit report, don’t panic. Follow these three steps to dispute the error and fix your credit:

Step 1: File a dispute with each of the major credit bureaus.
You’ll need to inform all three major credit bureaus, Equifax, TransUnion and Experian, about the error. All three bureaus allow you to file disputes online.

In your written dispute, you’ll need to clearly identify each disputed item in your report, explain why you are disputing these items and ask that the errors be deleted or corrected. Include your full contact information, as well as copies of any documents that support your claim. You can also include a copy of your credit report, highlighting the items you are disputing.

To file your dispute online, follow these links for each of the three major credit bureaus: Equifax, TransUnion, Experian.

You can also file your disputes by mail to Equifax and TransUnion; Experian currently accepts online disputes only. If filing by mail, it’s best to send your letter via certified mail with a requested return receipt. It’s also a good idea to keep a copy of your correspondence for your own records.

    • Mail your Equifax dispute to the following address:
      Equifax Information Services LLC
      P.O. Box 740256
      Atlanta, GA 30348
    • Mail your TransUnion dispute to the following address:
      TransUnion LLC
      Consumer Dispute Center
      P.O. Box 2000
      Chester, PA 19016

Step 2: Contact the creditor
After you’ve contacted each bureau, you can also reach out to the creditor that’s linked to the error in your report. This step isn’t necessary, but it may speed up the correction process.

Most creditors will provide a link or an address for disputes. When filing your dispute, follow the guidelines above and include all relevant information and documentation. Be sure to let the creditor know you’ve also contacted the credit bureaus, as they’ll want to include this information and a copy of your dispute if they report their findings to the bureaus. You can also ask to be copied on all correspondences between the creditor and the bureaus.

Step 3: Follow up in 30 days
Expect to be contacted by the bureaus and the creditor within 30 days after filing your disputes. If all goes well, your dispute will be accepted and your credit will be restored. In many states, you are eligible to receive a complimentary credit report following a registered dispute.

If one of the credit bureaus or a creditor refuses to accept your dispute or does not resolve the error in your favor, you can ask the bureau or creditor to include a copy of your dispute in your file and in all future credit reports. This way, a lender or creditor will be made aware of the alleged error when reviewing your credit. You may be charged a small fee for this service, but it is generally worth the price. If you feel the error is too significant to ignore, consider hiring a lawyer to help you contest the report and fix your credit.

Disputing an error on your credit report is fairly simple. Always monitor your score and be vigilant about correcting errors. The payoff can affect your financial wellness for years to come.

Your Turn:
Have you ever filed a dispute for an error found on your credit report? Tell us about it in the comments.

Learn more:
creditkarma.com
myfico.com
consumerfinance.gov

All You Need to Know About Data Breaches

hands on a computer keyboard with security lock icons superimposedIf you follow the news, you’ll note that there seems to be another major data breach monopolizing headlines every week. The details vary, but in each breach, thousands, millions or even billions of victims’ sensitive information is compromised, and they’re now vulnerable to identity theft unless they take immediate action.

Here at Advantage One Credit Union, your financial success and safety is our primary goal. To help keep your information and your finances secure, we’ve compiled a comprehensive guide on data breaches.

What is a data breach?
Data breaches occur when sensitive information is accessed or used without authorization. Factors like a wealth of online data and sophisticated hacking tools have spurred a steep increase in data breaches in recent years, causing tremendous damage to individual consumers and businesses across every industry.

Data breaches occur by exploiting vulnerabilities in a company’s security system. Alternatively, an employee can be tricked into giving a cyber-criminal access to the company’s network.

The goal of most data breaches is to obtain personal information, like names, email addresses and passwords, as well as financial information, like credit card numbers and account details. This information is used by criminals to steal identities and empty accounts, or sold to other criminals who will then do so.

While major data breaches make headlines, according to the Identity Theft Resource Center, there is an average of three data breaches each day, most of which will never even make the news.

After a data breach
Whenever you hear about a major data breach that can possibly affect you, it’s best to monitor your accounts for suspicious activity. In most cases, you will be notified by the victimized company if your data has been compromised; however, it helps to keep an eye on your accounts even if you haven’t been contacted so you can minimize your loss by acting quickly if your are among the unfortunate victims.

If you’ve been victimized by a breach
If you’ve been informed your information is compromised by a data breach, take the following steps immediately:

  1. Freeze your credit
    Placing a freeze on your credit is the most crucial step you can take to stop scammers from getting at your information. A credit freeze will not bring down your credit score, but it will serve as a red flag for lenders and credit companies by alerting them to the fact that you may have been a victim of fraud. This added layer of protection will make it difficult, or impossible, for hackers to open a new credit line or loan in your name.

    You can freeze your credit at no cost at all three of the major credit bureaus, Equifax, Transunion and Experian. You’ll need to provide some basic information and you’ll receive a PIN for the freeze. Use this number to lift the freeze when you believe it is safe to do so.

  2. Change your passwords
    Most people are on the alert following a major data breach, but they tend to let their guard down once the heat is off and things calm down. Hackers know this, and they’ll often hold onto victims’ information immediately following a data breach and then sell it months down the line to other identity thieves. To protect your accounts from a delayed-reaction hack, change all of your passwords after a breach that possibly has affected you.
  3. File an identity theft report
    Unfortunately, these protective measures can sometimes be too little, too late. If your accounts have been compromised, and you believe your identity has been stolen, file an identity theft report with the Federal Trade Commission (FTC) as soon as possible. This will assist the feds in tracking down your hacker(s) and returning your finances to their usual state as quickly as possible.

Protecting your information
There’s no fool-proof way to protect yourself from a data breach, but following these simple steps can help keep your information as safe as possible:

Monitor your credit.
Check your credit accounts for suspicious activity on a regular basis. You can request a free credit report from each of the three major credit bureaus once a year at AnnualCreditReport.com. You may also want to consider signing up for credit monitoring, a service that will cost you $10-30 a month for the promise of notifying you immediately about any suspicious activity on your accounts.

Use strong, unique passwords.
Use a different password for each account, and choose codes that are at least eight characters long. Also, use a variety of numbers, letters and symbols. Vary your capitalization use as well, and don’t utilize any portion of your name, phone number or a common phrase as your password. Using a password manager like Dashlane or iPassword can also help keep your information safe. It’s also a good idea to choose two-factor authentication when possible, and non-password authentication, such as face recognition or fingerprint sign-in, for stronger protection.

Browse safely.
Never share sensitive information online and always keep your security and spam settings at their strongest levels. Make sure your devices are fully updated at all times. It’s also a good idea to keep your social media accounts as private as possible.

Hackers never stop trying to get at your data, but with the right protective measures in place, you can keep them from seeing success.

Your Turn:
How do you protect yourself from data breaches? Share your tips with us in the comments.

Learn More:
forbes.com
malwarebytes.com
searchsecurity
experian.com

Do My Monthly Bill Payments Affect My Credit Score?

Calculator and papers with credit rating on deskQ: I’m working on improving my credit score, so I’m being extra careful about paying my bills on time. But, since I don’t see these payments reflected in my score, I’m wondering: Do my monthly payments, like utility bills, count toward my credit score?

A: It’s commendable that you’re working toward improving your credit score, because building and keeping a strong credit history is crucial for your long-term financial wellness. However, unless you’re delinquent on a monthly utility bill, these payments will not affect your credit score.

However, there is a way out. Read on for four steps that can help your on-time monthly payments boost your credit score.

1. Use a Rent-Reporting Service
Your monthly rent payments can reflect positively on your credit score, but only if the credit bureaus know you’re paying your rent on time. They won’t accept this information from consumers, but you can sign up for a rent-reporting service, which will pass on this information to one or two of the three major credit bureaus. Some of these services are free, though most charge for the service, with fees of up to $100 a year.

Here’s a quick overview of some of the more popular rent-reporting services:

  • Rent Reporters: For a one-time enrollment fee of $94.95, your rent payments will be reported to TransUnion and Equifax for two full years. If you want to continue with the service after the initial two-year period, the cost is $9.95/month.
  • Rental Kharma: You’ll pay $25 for the initial setup and then $6.95/month. Rent reporting through this option is shared only with TransUnion.
  • RentTrack: Fees vary for this option, and it’s dependent on whether your landlord also uses the service. RentTrack, though, reports to all three credit bureaus.

2. Sign up for Experian Boost
Since early 2019, the Experian credit bureau has offered consumers the opportunity to have utility bills reflected on Experian credit scores. To sign up for the service, Experian requires access to your checking account information so the agency can identify your bill payments. Once it’s found the relevant information, Experian will ask you to verify the details and to confirm that you want this information included in your credit report. Once consent is received, your credit score boost will happen instantly.

Experian Boost only accepts on-time payments and, consequently, can only improve your score. However, if you neglect to pay any reported bills for three consecutive months, the change in your score will be reversed and will fall back to its previous level.

It’s also important to note that Experian Boost only increases your Experian score and does not affect your Equifax or TransUnion scores.

3. Use SimpleBills
SimpleBills is a service that currently reports utility bills to Equifax, with plans to include TransUnion and Experian in the future. The credit-reporting service charges $2.99/month and can be helpful for those who want to improve their score for building a credit history to qualify for a credit card or a loan payment.

Unfortunately, while your Equifax number may see an increase through SimpleBills, major score algorithms, like FICO and Vantage, might not consider this data when calculating your score.

4. Go Off the Beaten Track
If none of these options sound attractive to you, consider going the unconventional route by seeking an alternative score.

Alternative scores, like the PRBC or the FICO XD Model, will include information like your cable, rent, insurance, phone, utility and student loan payments, when calculating your credit score. Some alternative scores will integrate this data on their own, while others will allow you to self-report these payments, sometimes for a nominal fee.

While alternative scores can help individuals appear responsible for prospective employers and landlords, they won’t do much to build your real credit history or to make you eligible for a large loan.

If you’re serious about improving your score, you can take one or all of the steps outlined here to help your on-time bill payments boost your numbers. For the biggest impact on your score, make sure you are paying all your credit card bills on time, preferably in full. Don’t open any new cards while working on improving your score, and keep your credit utilization low.

If you need help managing debt and staying on top of your credit score, look no further than [credit_union]! Give us a call at [cu_phone] or drop us a line at [cu_email] to see how we can help. Your financial wellness is always our priority.

Your Turn:
Do you self-report your utility bills to any of the three major credit bureaus? Use the comments section to tell us how you do it and how it’s impacted your score.

SOURCES:

https://www.thebalance.com/add-positive-credit-history-to-your-credit-report-960100

https://www.nerdwallet.com/blog/finance/credit-report-rent-payments-incorporated/

https://www.www.bankrate.com/credit-cards/boost-credit-score-by-self-reporting/amp/

https://www.prbc.com/how-it-works

https://www.experian.com/blogs/ask-experian/does-paying-utility-bills-help-your-credit-score/

https://www.creditkarma.com/insights/i/experian-boost-allow-utility-telecom-payments-credit-scores/

https://www.growingfamilybenefits.com/paying-bills-build-credit/

https://simplebills.zendesk.com/hc/en-us