Debt Consolidation and Credit Card Counseling

Credit score systems vary, but the rules are the same

The three credit bureaus, Experian, Trans Union and Equifax, have traditionally each used their own, slightly different, methods of keeping track of how “healthy” a consumers credit might be. The systems were either the popular FICO scoring model or proprietary systems, but the results were the same - a simple, three digit number that, at a glance, indicated to any potential lender whether the borrower was worthy of receiving more credit or a loan.

These systems will probably be replaced by the new VantageScore system that the three bureaus have pledged to use. The new system will be used by all three bureaus and it has a simplified, “report card” style grading system that should be easier for consumers to understand. No matter what system is in use, the bottom line is the same - consumers need to realize that they, and they alone, are responsible for the health of their own credit scores. And keeping them healthy isn’t that hard.

Here are some more tips for keeping your credit score healthy so that you can have affordable credit and loans available to you when you need them:

Pay your bills - This one seems obvious, but it’s the single most important factor.  Pay your bills, and pay them on time. Your report will keep track of every time you pay a creditor 30, 60, or 90 days late, and that information will stay on your report for seven years. Bills paid less than 30 days late will probably not show up on your report as a delinquency, but why not pay on time? Paying on time, or even better, paying in full and on time is the single most important thing a consumer can do to keep their report and score healthy.

Keep your head when using credit cards - You may have a huge limit, such as $30,000, but the bureaus keep track of how much of that limit you are using. The debt ratio is the amount of your credit that you are using compared to the amount that you have available. You want lenders to see that you are using as little of your available credit as possible; otherwise, they might think you are irresponsible or simply over your head. Yes, it’s a bit strange - the companies will give you credit but the bureaus don’t want you to use it. Less is more.

Vintage credit is good - If you must cancel an account, cancel a newer one. Sometimes it is necessary to cancel a credit account. Perhaps you don’t use the card anymore. Perhaps the terms no longer suit you or the annual fee has risen and you no longer wish to pay it. If you absolutely must cancel an account, go ahead and do it. If you have a choice of which to cancel, cancel the newest one. A significant component of your score is the age of your credit, and older is better. It shows that you have a “track record” of handling money, and the longer you have been doing it, the better you are.

We will continue this article on credit score health in part two.

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