Whether it is Equifax in Canada, or perhaps the FICO score in the US, having flawless credit ratings is not only fanciful thinking, but not exactly possible. Fact of the matter is, getting a perfect score won’t give you a better rate than if you had one or two belmishes on record.
The FICO score, can range from 300 (very bad) to 850 (solid gold). But don’t expect to see many 850s walking around. Maybe more of a 775 walking around, with the same rate as the mysterious 850. Here are some tips to help your loan and credit ambitions.
Apparently in the US, even if you pay off your balances every month, you may show a balance on the day your history is pulled for a loan, says Craig Watts, the public-affairs manager for Fair Isaac. Creditors like to see consumers using credit judiciously so that they know consumers will have no problems paying, he says.
Use a small fraction of your available credit. Credit scoring will examine how much of your available credit you’re using and penalize you if the percentage is too high. I guess I’m screwed on that deal, and so is every single student on the planet. For example, the credit company will only give you a low credit line cause your a student. But when you have to pay tuition you have to max out 2-3 credit cards to get it done. Pretty stupid loose loose situation for students.
The limit that creditors want to see is anywhere from 25% to 35%, depending on the formula (and whom you ask).
Credit-scoring models will compare how much credit you have available versus how much you’re actually using. If your percentage ventures too high, your score will take a hit. And if you close an account, you suddenly have less available credit with the same debt load, which increases the percentage of available credit you’re using.
Don’t carry a wallet loaded with cards. The people with great scores don’t use credit as much, and they treat it differently than the rest of us. You really only need 2 MAYBE 3.
Make every payment on time. Follow up to make sure the creditor notes that correctly on your credit history. If you’ve honestly paid on time but you get penalized for being late, call and clear up the problem immediately. Not only are those late charges expensive, but one late payment can lower your credit score severely.
View credit as a safety net. How you use credit and what you buy with it can be a big indicator of your creditworthiness. People with great scores know that credit is for certain purchases, such as for a home or a car. And credit cards are for expenses such as auto repairs or home appliances, which are necessary immediately but are difficult to pay for all at once, or for emergencies. Don’t buy the new 200 jeans. But having said that, I still woudln’t go out and put a balance on my credit card at 20% interest regardless. If you can’t afford it then do laundry in the tub.
Look at your credit report. Some consumers mistakenly believe that pulling their own credit history will hurt their scores. Wrong. If you ask for credit and give permission for a potential creditor to see your report, your score will go down slightly because it’s likely that you’re looking to increase your debt load.
But if you simply pull your own credit history or purchase your score, it will have no effect on your credit at all. Actually, the result may be quite the opposite: If you use your report to improve your performance with credit or spot and correct mistakes in your report, pulling your history will lead to an improved score.
Consumers are entitled to at least one free report from each of the three major credit bureaus annually. Many consumer experts recommend pulling a different bureau report every four months as a way of keeping an eye out for mistakes and identity fraud.