fico

6 Monthly Bills That Won't Affect Your Credit Score

Dan Rafter — Tue, 19 Jun 2018 08:00:30 +0000

What's the best way to keep your FICO credit score healthy? Simple: Pay your bills on time and don't rack up too much debt. Some bills, though, are more important to your credit score than others.

In fact, you might be surprised to learn that many of the payments you make every month have no direct impact on your traditional FICO credit score. That's because in order for a payment to boost your score, or a late payment to hurt it, it must be reported to at least one of the three national credit bureaus: Experian, Equifax, and TransUnion. And many of the companies and service providers you pay off each month don't do this.

That's a mixed blessing. Making a payment late to these creditors won't necessarily hurt your score — unless you pay so late that the bill is sent to collections. On the other hand, paying these bills on time won't help your credit score, either. (See also: 5 Money Matters That Won't Affect Your Credit Score)

Which bills are not reported to the credit bureaus?

There are six common monthly bills that have no direct impact on your credit score. They are:

Utilities.
Insurance payments.
Bills from medical providers.
Cellphone payments.
Cable service.
Membership to health clubs or gyms.

If you're a few days late in paying your car insurance bill, don't panic. Your misstep won't hurt your credit score, just as paying your bill on time won't help it.

But that doesn't mean you can just ignore the bill. There are other consequences for late payments. You might face late fees, penalties, or even the cancellation of service. Your auto insurer, for instance, might charge you an extra $25 if you make your payment after a certain date. Your gym might cancel your membership. And both of those scenarios are still not as bad as if your provider sends your account into collections.

That's because, while a biller may not report payments directly to the credit bureaus, if you miss too many payments, they might send a debt collector after you. Once your account falls into the hands of a collections agency, this will be reported to the credit bureaus. Having an account in collections can cause your credit score to tumble by 100 points or more. (See also: Here's What Happens to an Account in Collections — Even When You Pay Up)

What about rent?

Apartment rent is a more complicated issue. In most cases, the rent you pay each month isn't reported to the credit bureaus. Paying your landlord on time every month usually doesn't provide a boost to your credit score.

There is a movement, though, to change this. The theory goes that renters should be rewarded for paying on time, just as homeowners are when they pay their mortgage bill each month.

Some landlords have begun reporting rents to the credit bureaus. And if you want to report your own rent payments, you can sign up for a rent-reporting service such as Rent Reporters or Rental Kharma.

These services are limited. Both Rent Reporters and Rental Kharma, for instance, only report rent payments to one of the credit bureaus, TransUnion. You'll also have to pay for these services. (See also: 7 Ways to Rent An Apartment With Bad Credit)

Some alternative credit scores do include other bills

As lenders try to expand their market reach, some are looking beyond the traditional FICO score to so-called alternative credit scores. Some of these scores include your behavior with the bills listed at the top of this story, or your management of checking and savings accounts. The FICO Score XD, for example, is for people who have such thin credit reports that they're unscorable by traditional methods. It relies on a consumer's utilities, cellphone, and other bills.

The number of lenders who look at alternative credit scores is still in the minority. But if you're applying for credit and have a limited credit record, it never hurts to ask that a lender take into consideration your good payment history on other types of bills. (See also: How Alternative Data Can Help Those With Little or No Credit)

Monthly payments that always impact your credit score

Some of the payments you make each month will always be reported to the credit bureaus. It's important to pay these on time each month if you don't want your credit score to drop. They are:

Credit card bills.
Home equity lines of credit.
Mortgage.
Auto loans.
Student loans.
Personal loans.
Home equity loans.

Note that revolving credit accounts — credit cards and lines of credit — carry more weight in your FICO score than installment loans.

Also, a payment isn't reported as late to the bureaus until you miss it by 30 days or more. Your two-week delay on your credit card payment won't show up in your credit reports.

However, you'll still be charged a late fee for being even one day late. And every day that you delay payment, interest charges mount. So, it still benefits you to make your payments on time, or as soon after the due date as you can. (See also: 5 Simple Ways to Never Make a Late Credit Card Payment)

Like this article? Pin it!

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5-Minute Finance: Checking Your Credit Score

Dan Rafter — Tue, 24 Apr 2018 09:00:07 +0000

Your credit score is one of the most important markers of your financial wellbeing. A strong score will net you the best interest rates on car loans, a mortgage, and credit cards. A weak score can leave you struggling to get approved for financing at all.

It's vital that you regularly check your credit score and make efforts to keep it on the up and up. Not sure how to do this? It's easy. All you need is five minutes.

What is your credit score?

You actually have several credit scores. FICO credit scores are the ones that most lenders check, but there are even several different FICO scores. The most common one that lenders use today is the FICO Score 8. VantageScore is another type of credit score that lenders use. Both FICO and VantageScore use a scale of 300 to 850.

Each three-digit credit score that you have is generated using the information in your credit reports. They serve as a designation of your risk level, and tell lenders whether you have a history of paying your bills on time and managing your credit well. If you have a strong credit history, your score will be higher. If you have managed your finances poorly, your score will probably be low.

In general, most lenders consider a FICO credit score of 740 or higher to be a good one. A score under 640 could make it difficult to qualify for auto or mortgage loans or earn the best credit card offers.

Why you should check your credit score

Knowing your credit score is important, especially before you plan to make any large purchases or try to qualify for financing. If your score is low, lenders might not approve you for that loan at all. If they do, they'll charge you higher interest rates to protect themselves from the increased risk they are taking on by lending to you.

With higher interest rates, your monthly payments on mortgage, student, auto, and personal loans will be higher. Your credit cards, too, will come with higher interest rates, which will cost you if you carry a balance on them each month. If you know your score is low, you can take steps to steadily build it before you apply for new loans or credit cards.

It's also important to keep an eye on your credit for any strange activity. If your score suddenly plummets due to a late payment you know you made on time, it's important to take steps to correct the mistake on your credit report ASAP.

How to check your credit score

You can order your FICO score from myFICO.com. Depending on how much information you request, ordering your score can cost you from $19.95 to $59.85. For $19.95, you can order your FICO score from one of the credit reporting bureaus: Experian, Equifax, or TransUnion. For $59.85, you can order your FICO score from all three credit bureaus.

You can also order your FICO score directly from one of the three credit bureaus. Again, you'll have to pay for this, and be careful to read the fine print. For example, Experian offers your FICO Score 8 when you order a $1 copy of your credit report — just be aware you'll be automatically enrolled in their CreditWorks credit monitoring program, and will be charged $21.95 a month if you forget to opt out. Experian also offers the option to order FICO scores from all three bureaus for $39.99. The other bureaus charge similar prices.

Several websites, such as CreditSesame, also offer free credit scores. These scores might not always be the official FICO scores that lenders use, but they will still give you a ballpark idea of how strong or weak your credit is. Just make sure that the site you order your free scores from doesn't ask for your credit card number. If it does, you might accidentally sign up for a credit monitoring service that will charge you each month until you remember to cancel it.

Your credit card provider might also provide you a free version of your credit score. Again, this might not be an official FICO score, but it will also give you a sense of whether you need to work on improving your credit.

Next steps

Once you know your credit score — or at least one of them — it's time to take steps to improve it. You'll have to practice sound financial habits over time to see an improvement.

The best way to boost your score is to make all of your payments on time. If you build a long record of on-time payments, your score will gradually improve.

At the same time, work on paying down your credit card debt. Your score will suffer if you have too much revolving debt, so work to chip away at it as best as you can. Always make more than the minimum required monthly payment. You'll never pay down your credit card debt by only paying the minimum.

Don't close credit cards you aren't using. Closing an account will automatically boost the percentage of your available credit that you are using, which will cause your score to fall. But don't ignore your credit cards, either. Buying items with your card and immediately making your payment is a great way to build your score. Make sure you only charge what you can afford to pay back in full each month.

Additional resources

Five Ways to Improve Your Credit Score Fast

Is It Worth Paying for Your Credit Score?

FICO or FAKO: Are Free Credit Scores From Credit Cards the Real Thing?

Like this article? Pin it!

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

I Checked My Credit Score in 11 Places — Here's What I Learned

Carrie Kirby — Thu, 12 Apr 2018 08:00:06 +0000

For decades after credit scores emerged in the late 1950s, they were rarely seen by anyone but loan officers. Nowadays, offers of free and cheap credit scores are everywhere — from the online dashboard of your bank or credit card account, to self-help finance sites. Other sites charge as much as $20 for a credit score.

Why would you pay $20 for something you could get for free? Is the free score as accurate as the $20 score? It turns out, the answers to those questions are not simple, but — spoiler alert — it is sometimes worth it to pay up.

I tested the various credit scores available myself by visiting a number of free sites, checking the free scores offered by my bank and credit cards, and by purchasing three credit score products. Of my three checking accounts, two of them offered free credit scores. Of three credit card issuers I looked at, all of them offered free scores, although I sometimes had to dig around for them once signed into my account. I learned that different credit scoring systems can come up with a range of numbers based on the same credit history. While all my scores were pretty good, they were spread over a 39-point range, which put me in the top category on some score reports, but only the second-best on others.

Test results

My results are summarized in the chart below. The chart notes the website or other source where I got each score, the name of the particular score I got (more on that in a minute), the credit bureau that provided the information upon which each score was based, and the price for the score. All the scores are based on a range of 300-850 points, unless otherwise noted. (See also: What Is a Good Credit Score and Why Is It Important?)

I am just one person, with one set of credit cards and one mortgage. How can I have so many different credit scores? How can I even have different credit scores that say they are based on the credit report from the same bureau? Which score is correct? (See also: FICO or FAKO: Are Free Credit Scores From Credit Cards the Real Thing?)

What you're paying for

Barry Paperno, who worked in the credit industry for 40 years and now writes about credit in his blog, Speaking of Credit, explained that I was looking at least three different products, created by different companies. The free score offered by popular websites is usually the VantageScore, formulated by a software product co-created in 2006 by the three major credit bureaus, Experian, TransUnion, and Equifax.

The $15.95 score was created by Equifax with its own proprietary scoring system. Both VantageScore and the proprietary scores offered by the individual credit bureaus are great for educational purposes; in other words, they'll tell you if you have generally good credit or bad credit. But most banks don't use them to make lending decisions, Paperno says.

The scores I paid $19.95 each for are from FICO, the original credit score company and the one that most banks turn to when making mortgage decisions.

Another small difference among the different scores may be how old they are. The free scores that my financial institutions and Credit Sesame gave me were between two weeks and two months old, while the ones I paid for were dated only a couple of days before I checked them, and the free scores I got from FreeCreditScore.com and Credit Karma were dated the same day I checked them. (See also: 4 Surprising Things Lenders Check Besides Your Credit Score)

To further complicate things, several weeks passed between when I paid for the myFICO scores and when I checked the free scores. myFICO, I found, doesn't update once you've paid, so those scores are now almost a month old. During the intervening time, I charged some large purchases, and my credit score declined by 10 points or more on some of the other score reports but you'd never know that looking at the myFICO scores.

Which score should you get?

None of these scores are fake or inaccurate. All work in similar ways, assessing how likely you are to repay debt by looking at your history and your current use of credit. All provide an accurate picture of how your credit stacks up compared to other consumers. Which one you should get depends on your purpose.

Credit score health check

If you just want to know whether you have good or bad credit, any score will do. In that case, you might as well get a free score from your bank or credit card issuer, or go to one of the free sites listed here.

There is no apparent advantage to going to a credit score site rather than getting it from your own bank or credit card site. Different sites have different bells and whistles; some show you the history of your score, while others take information from your credit report to help explain your score.

Mortgage

The type of score you look at matters more if your goal is to get a new credit card, mortgage, or other type of loan. "Then your goal is to get your score to a certain point so that your credit application will be accepted," says Paperno. "Since the scores tend to differ, it becomes important to know what score the lender is likely to pull."

If it's a mortgage lender, they're likely to pull older FICO scores from each credit bureau, namely the FICO 2, FICO 4, and FICO 5 scores, possibly along with others. When you purchase your FICO score from myFICO, you can get your FICO Score 8 from all three credit bureaus, as well as a number of industry-specific scores. So if you want a mortgage and you're not sure if your credit is good enough (760 is usually the cutoff to qualify for the best rates, Paperno says), it's a great idea to go this route.

For a one-off snapshot of your FICO scores, go to myFICO.com and click on the Products tab at the top. You can buy one-time single-bureau credit reports (FICO Score 1B Report for $19.95) or three-bureau reports (FICO Score 3B Report for $59.85).

Why pay more for scores from all three credit bureaus instead of just getting one? Since the credit report from each bureau could be slightly different (each may include some details but not others), it's best to avoid surprises by making sure that the credit score based on each report is in the same range.

Car loan

If you're getting a car loan, the lender might pull the industry-specific FICO Auto Score, which comes with the scores from myFICO. To know for sure, call the finance department at the dealership you're considering and ask which bureau they pull from or which scores they use.

Next, go to myFICO.com, click on the Products tab at the top of the page, buy one or all three scores from myFICO, then click on "View additional FICO score versions used in mortgage, auto and bank card decisions." There, you'll find your FICO Auto Score 8, optimized to reflect the credit behavior that auto lenders care most about, with an emphasis on how well you've paid off previous auto loans (mine was 779, four points higher than my FICO Score 8).

Credit card

There is also a FICO score customized for the credit card industry, FICO Bankcard Score, but Paperno said that it's not as popular with credit card lenders as the Auto Score is with car lenders. He says it's not worth paying money just to get a Bankcard score. Any free FICO Score 8 is good enough.

Personal loan

For personal loans, even a 50-point difference in your credit score could affect your interest rate by several percentage points, according to GoBankingRates.com. But many lenders will do a soft pull of your credit during a prequalification process.

How do you know which score you're getting?

Most of the time, if you're getting it for free you can assume you're looking at a VantageScore, but not always. Most websites will identify — sometimes in small print — the source of the score they're providing. I purchased my three-bureau FICO score report from myFICO.com for $59.85; Experian also offers a three-score and credit report package for $39.99.

But is it possible to find a FICO score for free? Yes. I got an Experian-based FICO Score 8 at FreeCreditScore.com, a site owned by Experian. And my bank provided my Equifax-based FICO Bankcard score.

If you want to follow Paperno's advice and check FICO scores from all three credit bureaus when you have an important borrowing decision ahead of you, you will have to pay to do so. I didn't find any way to get all three for free.

Why are your FICO Score and VantageScore different?

Now that I understand that both FICO and VantageScore give me an accurate picture of my credit, I still wonder how they can look at the same reports and come up with different numbers. In particular, my FICO scores are my lowest scores. Is it always that way?

"FICO tends to be a little stricter," Paperno says. Although both systems consider basically the same facts — late payments, how much credit you have available, how much debt you have, the age of your accounts, etc. — they might vary slightly in the details. For example, if you have an account that went to collections and you paid it off, VantageScore will drop that black mark from your record, but it will still influence most versions of the FICO Score.

Buyer beware

When searching for free credit scores, I came across a number of Google ads promising them, leading to websites I was unfamiliar with. I found that many such sites are owned by companies with some pretty unsatisfied customers, many who complain they were charged for ongoing credit monitoring services without their knowledge.

Even with the big name companies, make sure when paying for a credit score that you know what you're signing up for. Many will at least ask you if you want to sign up for a paid monthly credit monitoring subscription. When I purchased the $1 TransUnion score, I at first completely missed that I had also signed up for a weeklong free trial of a $19.95-per-month credit monitoring service. Fortunately, I canceled it in time to avoid billing. I didn't want to repeat that experience, so when I clicked on a $1 credit score offer from Experian and realized that buying it would sign me up for a free trial of their $14.99-per-month monitoring service, I didn't buy either.

Like this article? Pin it!

This article is from Carrie Kirby of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Reasons Why Your Credit Score Dropped Out of the Blue

Dan Rafter — Mon, 19 Mar 2018 10:00:07 +0000

You pay your credit card accounts on time each month. You never miss a mortgage payment. You haven't run up loads of debt. So why did your credit score suddenly drop 20 points?

You know the big reasons why your credit score might fall: late payments and a large amount of new credit card debt. But there are other reasons that aren't so obvious. And if your credit score did take an unexpected dip, one of these less-obvious reasons might be behind it.

1. You canceled a credit card

You might think that canceling a credit card that you no longer use is a smart financial move. If it prevents you from running up charges on that card, it might be. But closing a credit card can also cause your credit score to drop.

This is because of something called your credit utilization ratio. This ratio measures how much of your available credit you are using. The lower this ratio, the better it is for your credit score. Say you have three credit cards each with a limit of $6,000. That's a total credit limit of $18,000. Now say you have $6,000 of credit card debt. You are using $6,000 of $18,000 of total available credit, which is a credit utilization ratio of about 30 percent. Lenders like to see this ratio around this level or lower.

If you close one of those cards, you'll suddenly be using $6,000 of just $12,000 of total available credit — a credit utilization ratio of 50 percent. That jump could cause your credit score to take an unexpected fall.

2. You've been building up credit card debt gradually over time

Closing a credit card account isn't the only way to increase your credit utilization ratio. Maybe you've been steadily building up new credit card debt for months. You're making your credit card payments on time, but you're also increasing the total balances on your cards. This, too, can gradually cause your credit utilization ratio to rise and result in a dip in your credit score.

The better move is to pay off enough of your credit card debt each month so that the amount of your available credit is steadily declining instead of rising. (See also: The Fastest Method to Eliminate Credit Card Debt)

3. You've applied for new credit card accounts

Applying for new credit cards or lines of credit can also cause your credit score to drop, at least a little. Every time you apply for a new credit card or line of credit, notice of the inquiry will be added to your three credit reports — one each maintained by the national credit bureaus of TransUnion, Equifax, and Experian.

Each "hard" inquiry for new credit can cause your score to drop slightly. And if you've applied for several new credit card accounts at the same time, that drop can be higher.

The good news is that drops from applying for new credit are usually minor ones. myFICO reports that inquires for new credit only account for 10 percent of your total credit score. (See also: How Credit Inquiries Affect Your Credit Score)

4. You've co-signed for someone who's missed payments

Have you ever co-signed on a loan for one of your children? It's not uncommon for parents to do this to help their kids, say, qualify for an auto loan if their credit isn't mature enough yet to qualify on their own. The plan is that the person you co-signed for pays his or her payments on time each month.

But what if that person doesn't pay? Because your name is on the loan, you are also responsible for the monthly payments. Those missed payments will go on your credit reports, too. And that can send your score tumbling quickly. (See also: Should You Co-sign Your Teenager's Credit Card Application?)

5. You didn't pay a medical or utility bill

There are plenty of bill payments that aren't reported to the credit bureaus. Experian, TransUnion, and Equifax don't receive information about your payments to doctors, utilities, cellphone providers, and, in most cases, the rent you pay to your landlord each month.

However, missing these payments can eventually cause your credit score to drop. After enough missed payments, the creditors behind these bills might send your account into collections. This will send a debt collection agency after you. It will also result in a notice on your credit reports that you have accounts in collections.

This can cause your credit score to take a severe fall. So don't ignore any bill, even if you think missing a payment won't end up on your credit report.

Like this article? Pin it!

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Monthly Bills That Vary Based on Your Credit Behavior

Dan Rafter — Tue, 01 Aug 2017 07:47:46 +0000

Your credit score is one of the most important numbers in your financial life. Because it incorporates data about your past behavior with credit — how much credit and debt you have and how good you are at paying those bills off — it's deemed as a good predictor of how you'll behave with future bills.

A low credit score can hurt you in many ways: It makes it more difficult to qualify for mortgages, car loans, or credit cards. And when you do qualify for a loan or credit card, you'll be stuck with higher interest rates and the higher monthly payments that come with them. Poor credit behavior can also cost you money each month in the form of higher student loan and insurance payments. (See also: 15 Surprising Ways Bad Credit Can Hurt You)

Most lenders today still consider a credit score of 740 or higher to be a strong one. Anything at 640 or lower, though, is considered weak.

Here's a look at five monthly bills that you'll pay more for if your credit score is low.

1. Mortgage payment

Your credit score has a big impact on your mortgage payment. If your score is high, odds are good that you'll qualify for a lower interest rate, which will, in turn, lower your monthly mortgage payment. If your score is low, the opposite will happen.

Here's an example of the difference that a high or low interest rate can have on your monthly mortgage payment: If you take out a 30-year, fixed-rate mortgage loan of $200,000 at an interest rate of 3.80 percent, you'll have a monthly payment of about $931, not counting what you might pay for homeowners insurance and property taxes.

If you take out that same loan with a higher interest rate of 4.80 percent — which you may have gotten due to a low credit score — your monthly payment, again not counting taxes and insurance, will be about $1,049. That's $118 more a month, or about $1,416 a year. (See also: 4 Smart Ways to Lower Your Monthly Mortgage Payment)

2. Auto loans

You'll face the same situation when applying for an auto loan with a lower credit score. Auto lenders, like mortgage lenders, rely heavily on your credit score. If they see a low score, they'll protect themselves financially by charging you a higher interest rate. This higher rate will result in a higher monthly payment.

The higher rates make sense if you look at your loan from your lender's point of view. A lower credit score means you have a history of making bad financial choices, whether that means paying bills late or missing them entirely. Lenders then levy a higher interest rate to make up for the danger of lending to riskier borrowers.

3. Credit cards

Interest rates on credit cards can be high — 20 percent or higher in some cases. But if your credit score is high, you'll increase your chances of qualifying for a lower rate on your cards. This is important: If you carry a balance on your cards each month, a lower interest rate will mean a lower required minimum monthly payment. It also means your debt will grow at a slower rate.

How you use credit cards has a big impact on your credit score. If you always pay your cards on time, and if you don't run up too much debt on them, you will steadily boost your score. (See also: How to Pay Less Interest on Your Credit Card Debt)

4. Student loans

There are two types of student loans: federal and private. Your credit score won't affect your interest rate on federal loans. But lenders originating private student loans will look at your credit score. If your score is low, they'll charge you higher interest rates and fees. This will result in a higher monthly student loan payment.

5. Homeowners insurance

Insurance companies don't rely on your credit score to set your homeowners insurance rates. They do, however, use a similar metric known as an insurance score. This score includes information about your past payment history, your debts, and your number of open credit accounts, just like your credit score. It can also include information about any safety features — such as fire alarms and security systems — protecting your home and whether you've made a high number of insurance claims in the past.

If your insurance score is high, you'll qualify for a lower insurance bill. If that score is low, you can expect to pay more for your homeowners insurance.

Like this article? Pin it!

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Here's How Often Your Credit Score Gets Calculated

Julie Rains — Tue, 16 May 2017 08:30:14 +0000

Achieving and maintaining an excellent credit score may help you qualify for the best interest rates when you borrow money, potentially saving you thousands of dollars over the life of your loans. That's why it's especially important to check your credit when you begin to consider borrowing for a large purchase such as a home or car.

It helps to first understand how your credit score is calculated, what you can do to change it, and how long those changes take to impact your score.

Factors determining credit scores

Credit scores derive from credit reports, which consist of information about your credit history and activity with various lenders and creditors. Credit reports are maintained by the major credit reporting agencies, Equifax, Experian, and TransUnion.

FICO is the credit score provider most commonly used by lenders The five factors that go into your FICO score, broken down by how much they contribute to your score, are:

Payment history (35 percent): How timely have you been with payments on credit card balances, student loans, mortgages, etc.?
Amount you owe (30 percent): What are your credit balances and credit utilization ratio (your current balances compared to your credit limits)?
Credit history length (15 percent): How many months or years have you had credit and maintained relationships with creditors?
New credit (10 percent): How many new credit cards, loans, and credit-related accounts do you have? Too much new credit could make you appear desperate to lenders.
Types of accounts or credit mix (10 percent): how many different types of accounts do you have (mortgage debt, car loans, credit cards, etc.)? The more types you have, the better it is for your score.

Making timely payments, judiciously using available credit, maintaining long-standing account relationships, avoiding new credit, and holding diverse types of credit may influence your credit score positively.

How frequently credit scores get calculated

If you're working to improve your credit score, you may wonder how frequently your score is calculated and adjusted. Theoretically, knowing this frequency could enable you to monitor your credit score's movement, up or down, in response to your actions.

According to Experian's Director of Public Education Rod Griffin, credit scores aren't ever truly adjusted. Instead, each and every credit score that's calculated is unique. It's a snapshot reflecting your creditworthiness at a particular moment in time. Your score is based on your credit report when a score is requested and the proprietary formulas created by lenders or credit score providers, such as FICO and VantageScore. In addition, these providers each have different scoring models for different lending purposes. (See also: What Do All the Different Credit Scores Mean?)

For example, if you're getting ready to borrow money to purchase a new home, your mortgage lender may use a FICO score that's indicative of your credit risk for mortgage borrowing.

A few days later, you might decide to apply for a credit card. The card issuer may use a bank card scoring model in calculating this credit score. The number may be different from the mortgage-based score because it's based on a different formula and possibly new information on your credit report.

Generally, your credit report is updated whenever new information becomes available, for example, when creditors report payments at the end of their billing cycles.

Despite varying formulas and purposes, your credit scores tend to be similar, Griffin says. That's because scores are based on your credit reports, and the information contained in these reports tends to be consistent among reporting agencies.

Credit steps to take before a mortgage or car loan application

Griffin says reviewing your credit reports should be part of your financial routine. He emphasizes the value of keeping reports positive, not simply trying to fix your numbers: "Taking care of your credit reports means taking care of your credit scores."

But if checking your credit reports hasn't been on your to-do list, start paying attention to your information as soon as you think about borrowing for a major purchase and at least three to six months before applying for a loan. This time frame may allow you time to dispute any errors and make moves that could enhance your creditworthiness.

Here are steps to consider taking.

1. Review credit reports for accuracy

Access your credit reports from the three major credit reporting agencies through AnnualCreditReport.com. Federal law mandates that you can get one free credit report per year from each agency.

Review reports to make sure the information is accurate and up-to-date. For example, check home addresses and employer names. Notice whether outdated information lingers.

If something's not right, you can dispute errors on your credit report. Contact the credit reporting agency and information source (such as a former creditor) to describe errors and request corrections. The Federal Trade Commission (FTC) provides useful sample dispute letters for credit reporting agencies and information providers that can help you get an idea of what to write.

You may be able to use dispute resolution processes offered by credit reporting agencies. For example, Experian's online dispute process allows consumers to file a dispute from its website.

2. Look at your scores

Consider requesting a credit score to determine where you stand when trying to use your number to your advantage. A one-time report and score could be helpful to understand your current status and offer a baseline for monitoring changes in the future.

You can get scores using these methods:

Purchase a credit score as an add-on when you access one of your free credit reports.
Buy a one-time report and scores from myFICO or other sources.
Get a credit card that offers a free credit score to its cardholders or try free services like Credit Karma and Credit Sesame.
Purchase credit monitoring services that include credit scores. You can get these from myFICO.com, Equifax, Experian, and TransUnion. (See also: 7 Apps That Monitor Your Credit)

3. Monitor your scores

As you prepare for a major financial event, such as getting a mortgage or refinancing an existing home loan, consider monitoring your credit reports and scores over time to keep on top of any changes that occur.

Credit monitoring is available for a fee from credit reporting agencies and other sources, such as myFICO. You might also consider tracking your credit scores through free sources. For example, you might just keep note of scores offered by your credit card company every month.

This scrutiny can be helpful but alarming. Griffin tells borrowers not to panic if they see changes from month to month, as credit scores move up and down frequently. He says that generally you don't need to be concerned with volatility as long as the scores trend upward over a longer time frame. (See also: Why You Shouldn't Panic If Your Credit Score Drops)

4. Take actions as appropriate

When you receive your credit score, generally you'll also get a list of factors indicating why your number is less than perfect. These risk factors indicate where to focus your attention. (See also: How to Increase Your Credit Score Quickly)

When personal finance educator Kate Horrell's credit score fell from the 800s to 660s just a few months before a mortgage refinance, she realized that the decline reflected two factors: She had taken on new credit using a 0% APR credit card; and she had increased her credit usage to manage about $100,000 in home renovations.

Still, Horrell was surprised at the impact on her scores, considering her stellar history. She couldn't do anything about the new account but found ways to pay off the card balance quickly. When she applied for the mortgage refinance a few months later, her score had increased to the mid-to-high 700s, enabling her to snag a 3.125 percent rate.

Griffin emphasizes that the risk factors named with your credit score don't always warrant action. In some cases, it's not worth it to address risk factors just to raise your score a few points.

For example, my lack of both credit diversity and recent installment loans dings my score, which is still above 800 and considered "exceptional." However, I don't plan on taking out a new loan just to try to boost my number.

While you can't predict the precise impact of specific actions, you can learn what moves reflect positively on your credit report. As your credit report is updated (with new and hopefully, improved, information) your credit scores could trend upward, potentially enabling you to take advantage of your numbers for cost savings.

This article is from Julie Rains of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Read a Credit Report

Damian Davila — Thu, 11 May 2017 08:00:09 +0000

Building and maintaining your credit history takes time and dedication. While there are many things you can do when shooting for that perfect 850 FICO score, checking your free credit report every year from AnnualCreditReport.com is among the best personal finance habits. Once you have a copy of your credit report, let's review step-by-step what to look for.

1. Check your personal information

First things first: Make sure that your credit report correctly shows your name, Social Security Number (SSN), phone number, and address. The three credit bureaus (Equifax, Experian, and TransUnion) keep track of all variations of names and SSNs reported as belonging to you.

You can easily rectify a small error, such as a misspelling, absence of a hyphen in a last name, or transposition of a street number by contacting the credit bureau and providing supporting documentation. Keep an eye out for information that you don't recognize at all — this may be a sign of identity theft. (See also: Don't Panic: Do This If Your Identity Gets Stolen)

2. Verify it's really you

Even after checking that your full name and address are correct, you may recognize some accounts on your report that belong to somebody else in your household. In this case, you may be a victim of a mixed file — when the credit information of two individuals sharing the same name gets mixed up in a single report.

This can be a potential issue in multigenerational homes with several family members sharing the exact name. For example, John Smith Jr. opens a store card but the credit bureaus list the account on the father's report (John Smith Sr.) instead of the son's. That would be a mixed file.

3. Watch out for errors in account ownership

Going back to the example of the father and son, the father may have decided to open the store card in his name, and then add his son as an authorized user, or vice versa. Make sure that reported accounts are only the ones for which you are the owner.

4. Look out for accounts incorrectly reported as late or delinquent

Unless you were more than 30 days past due, you shouldn't have a late or delinquent note on any debt. So, report this right away. (See also: How to Clear Old Debt From Your Credit Report)

If you recently made a payment and your account is now current, keep in mind that there is often a lag when credit bureaus report such incidents. Follow up with the company owning your debt and verify that it has notified the credit bureaus. Keeping your accounts current is critical, because payment history makes up 35 percent of your FICO credit score.

5. Validate key account dates

The most important date to verify is the date that an account was opened, because the length of your credit history accounts for 15 percent of your FICO credit score. Other important dates to verify are date of last payment, and date of first delinquency.

6. Beware accounts listed twice

It can happen! Possible sources of this error are when you upgrade a credit card with the same company, or refinance a loan with the same financial institution. Another possibility is that somebody opened an account on your behalf without your consent.

You also need to watch out for companies transferring the ownership of a delinquent account over to collections agencies. While you're still responsible for paying back what you owe, you're definitely not liable to receive a double (or triple!) whammy on your credit score for the same mistake.

7. Double check credit limits and balances

Double check that your account balances are within a range you recognize, and that your credit card limits are up to date. After all, 30 percent of your FICO score is based on your credit utilization ratio — your total credit card balances divided by your total credit card limits. For example, an outstanding balance of $4,000 with total credit limit of $15,000 would put your credit utilization ratio at 26 percent. The more available credit you have, the lower your credit utilization ratio will be. Most experts recommend this ratio should not exceed 30 percent.

8. Keep an eye on public records

A bankruptcy isn't the only reason you might end up with a public record on your account. Unpaid driving violations, library fines, or other penalties from money owed to the government will come to haunt you on your credit report. Depending on many factors, public records can stay on your report for up to seven years, even after taking care of them. This means that the best time to take care of them is now. (See also: 4 Credit Report Mistakes That Could Be Costing You Big)

9. Corroborate that corrected information has been posted

Chances are at some point, you'll eventually have to report an error. When this happens, always follow up to check that the incorrect information has been replaced and corrected.

What to do if you find an error

If you find any errors in your credit report, refer to the instructions on your credit report to dispute inaccurate or missing data. Here is a useful template from the Consumer Financial Protection Bureau to initiate disputes with the credit bureaus by mail or fax. Or, you can file a dispute online with Equifax, Experian, or TransUnion.

This article is from Damian Davila of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

3 Ways Retirees Can Build Credit

Dan Rafter — Wed, 26 Apr 2017 20:00:10 +0000

You might think that once you reach retirement, your credit score is just one of those things you get to stop worrying about. While it's true that most retirees won't be applying for mortgages, it's not true that you don't need to maintain a decent credit score. What if you want to apply for a car loan? What about credit cards? You certainly won't get the lowest interest rates and best rewards programs possible without a good credit score to back you up.

A low credit score can also hurt you if you want to downsize to an apartment, or even move into a senior living facility. You might need a solid credit score to qualify.

Why it's hard for retirees to build credit

According to FICO, to have a credit score, you must have at least one credit account that is at least six months old. You must also have at least one account that has been updated by a creditor or lender during the last six months.

If you aren't paying a mortgage, paying off an auto loan, or using credit cards, you might not meet any of these requirements. This might lead to you becoming what FICO calls an "unscorable," a consumer who has no credit score at all.

Fortunately, there are ways for retirees to continue building credit. They require the same good financial habits you've been practicing before retirement.

Use the credit cards you have

You might prefer paying for items in cash. Instead, make small purchases throughout the month with your credit card. If you pay off your entire card balance each month, you'll continue to boost your credit score. (See also: How to Use Credit Cards to Improve Your Credit Score

Make sure that you don't charge more than you can pay off by the due date. If you do, you'll be stuck paying interest.

Never pay late. If you pay your credit card 30 days or more late, your card provider will report your payment as late to the national credit bureaus of TransUnion, Experian, and Equifax. This will cause your credit score to plummet. (See also: 5 Simple Ways to Never Make a Late Credit Card Payment)

Keep unused credit card accounts open

You might have a credit card that you never use, but don't close it. Having open credit card accounts helps your credit score, thanks to something called a credit utilization ratio.

This ratio measures your credit card balances against your total available credit limits, and it accounts for 30 percent of your score. Using too much of your available credit will cause your score to drop, while using a modest amount will help it rise. It's typically recommended that you not let debt tip this ratio beyond 30 percent. If you have a paid-off credit card that isn't getting much use, closing it will lower your overall available credit limit and your utilization ratio will then increase. (See also: How to Close a Credit Card Without Dinging Your Credit Score)

So, keep those unused cards tucked in your wallet. Having that extra credit that you're not using will provide a boost to your score.

Apply for a secured credit card

If you no longer have any credit cards, and you've become an unscorable, you can still build your credit. Your first step should be applying for a secured credit card.

You don't need a credit score to qualify for one of these cards. Their line of credit is based on the amount of money you deposit into an account with the financial institution issuing the card. (See also: How to Pick the Best Secured Credit Card)

If you deposit $1,000 into an account, you can then charge up to $1,000 on your secured credit card. Every time you use your secured card and pay off these charges on time, you'll get a boost to your credit score. Do this long enough, and you can build a score that's high enough to qualify for a traditional credit card.

Again, take the same precautions you'd take with a traditional credit card. Pay your bill on time each month, and never charge more than you can afford to pay in full by your due date.

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Close a Credit Card Without Dinging Your Credit Score

Ashley Eneriz — Wed, 29 Mar 2017 08:30:17 +0000

It might seem like common sense to think that individuals would be rewarded (or at least not penalized) for closing a credit card. Doesn't it show good credit sense? Whether you want to close a credit card to remove the temptation of using credit you can't pay back, or you have other credit cards that offer better rewards and benefits, you may be surprised to find that closing an account may negatively affect your credit score. (See also: The 5 Things With the Biggest Impact on Your Credit Score)

Why a closed account dings your score

It's important to know why closing a card negatively affects your credit score. Here are the two main reasons.

Your account history is shortened

If you close an account that you have had for several years, then you are cutting your account history short. Closing a credit card that you have had for almost a decade will have a bigger impact on your score than closing a card you've had less than a year.

Your credit utilization rate changes

If you currently have $2,500 in credit card debt, but have three cards that give you a total $15,000 credit limit, your current credit utilization rate is just over 16 percent. However, if you cancel one of the cards, and that card had a credit limit of $8,000, then you just decreased your overall credit line to $7,000. Your credit utilization ratio will now increase to over 35 percent. Having a credit utilization rate over 30 percent will negatively impact your credit score.

Ask for a card change instead of canceling

If you want to ditch a certain credit card due to high annual fees, you may be able to downgrade your card without canceling the account. Call the creditor and ask if you can change to a lower or zero fee card.

Asking for a card change is also important for those who are using a secured card to boost their credit score. Some secured cards may automatically upgrade your account to an unsecured one, but not always. If your account is in good standing, the creditor should move your account to a better card. (See also: Best Secured Credit Cards)

Ask for credit limit increase on other cards

If you are still set on closing your credit card account, you can minimize the damage by asking for a credit limit increase from other cards you're keeping. This will prevent your credit utilization ratio from changing dramatically.

Close the newest cards first

Choose a newer card to cancel rather than an old one. This will prevent your score from dropping too much from a shortened overall account history. Don't close any accounts if you are planning to apply for loans soon. It will take your score a few months to recover. If a lender pulls your report shortly after you've closed your accounts, they'll see some account activity that may make them less likely to approve a loan, not to mention your sudden drop in score.

Finally, be sure to monitor your credit score for a few months after you close your account to ensure everything went smoothly and no errors were reported. (See also: 5 Ways to Improve Your Credit Score Fast)

Why not just keep the card?

Credit card accounts in good standing will continue to positively impact your account for many years. Unless you're paying an annual fee for a card you're no longer using, it may be just as effective if you put it away in a safe place. This way you won't risk lowering your credit score.

However, if you do decide to close some accounts, keep these things in mind so it has a minimal impact on your score.

This article is from Ashley Eneriz of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Financial Mistakes That Won't Hurt Your Credit Score

Dan Rafter — Thu, 23 Mar 2017 10:00:11 +0000

Certain financial mishaps can cost you dearly when it comes to your FICO credit score. Pay your credit card bill more than 30 days late, and your score can drop by 100 points. Declare bankruptcy or lose a home to foreclosure? Your score will fall by even more.

In general, lenders today consider a FICO credit score of 740 or higher to be a very good score. They consider anything over 800 to be excellent. Keeping your score in these ranges requires that you pay your bills on time each month and keep your credit card debt low.

But here's a secret about FICO scores: They don't measure all of your financial activity. It's possible to suffer a few financial setbacks, or make some money mistakes, without seeing your credit score take a dive.

Here are five financial mishaps that, though they might cause problems in your daily life, won't hurt your credit score.

1. Paying your credit card bill just a little late

You should always pay your credit card bills on time. And ideally, you should pay off your cards in full each month. But if you miss your deadline by two days or three weeks, it won't impact your credit score.

Your credit card provider will only report a payment as late to the three national credit bureaus — Experian, Equifax, and TransUnion — if you are at least 30 days late on it. As long as you pay before that 30-day deadline passes, your credit score will remain intact. (See also: How Late Payments Affect Your Credit)

Of course, this doesn't mean that you won't take a financial hit. Your credit card provider could raise your card's interest rate and levy a late fee — usually around $35 — against you.

2. Forgetting to pay your doctor's bill

Not all bills are equal in the eyes of your credit score. Pay your credit card or mortgage payment more than 30 days late, and you can expect your FICO score to plunge. Do the same with your doctor's or dentist's bill, and your credit score won't budge.

That's because medical providers don't report late payments to the credit bureaus. So paying your dentist bill 40 days late won't hurt your credit score.

Again, though, you need to be careful. Paying your medical bills late could have other financial consequences. Your medical provider might tack on additional fees to your bill if you don't pay on time. And if you put off paying that bill for too long, your medical provider might send a collections agency after you. This will be reported to the credit bureaus, and it will cause your credit score to fall.

3. Not paying your phone or utility bill on time

Your phone, electrical, gas, water, garbage, and cable bills are much like your medical ones: The providers of these services don't report to the credit bureaus. You can pay these bills late without suffering a hit to your credit score.

Again, be careful. You don't want your utility company shutting off your service or sending your late bill into collections, something that will hurt your credit score.

4. Paying your apartment rent late (usually)

It used to be that apartment rent payments were never reported to the credit bureaus. Today, that is slowly beginning to change, with some services popping up that will report on-time, and late, rental payments to credit bureaus.

But the majority of renters still don't see their monthly rent payments reported to the credit bureaus. That's bad news for renters who pay their rent on time each month; those on-time payments could boost their credit scores if they were reported. It's a better deal for those renters with a history of late payments, as these financial mistakes won't hurt their credit scores.

5. Losing a job

You might be surprised to learn that your annual income has no impact on your FICO credit score. Your credit score only tracks how well you pay your bills and manage your credit. It does not care whether you make a $1 million or $10,000 a year.

If you lose your job and your income suddenly dips, your credit score won't budge.

If your reduced income causes you to run up your credit card debt or start paying your bills late, though? That will hurt your credit score.

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Myths About Credit Cards That Won't Go Away

Damian Davila — Tue, 21 Mar 2017 10:31:11 +0000

The idea of evaluating a person's creditworthiness goes back as early as 1899, when Equifax (originally called Retail Credit Company) would keep a list of consumers and a series of factors to determine their likelihood to pay back debts. However, credit cards didn't make an appearance until the 1950s, and the FICO score as we know it today wasn't introduced until 1989.

Due to these timing differences, many U.S. consumers hold on to damaging myths about credit cards. Let's dispel five of these widely held but false beliefs and find out what to do to continue improving your credit score.

Myth #1: Closing unused cards is good for credit

Remember when United Colors of Benetton used to be all the rage and you shopped there all the time? Fast forward a decade; you don't shop there anymore, and you're thinking about shutting down that store credit card. Not so fast! Closing that old credit card may do more harm than good to your credit score.

Your length of credit history contributes 15 percent of your FICO score. If that credit card is your oldest card, then closing it would bring down the average age of your accounts and hurt your score. This is particularly true when there is a gap of several years between your oldest and second-to-oldest card. Another point to consider is that when you close a credit card, you're reducing your amount of available credit. This drops your credit utilization ratio, which makes up 30 percent of your FICO score.

What to do: Keep those old credit cards open, especially when they are the oldest ones that you have. Just make sure that you're keeping on top of any applicable annual fees and they're not tempting you to spend beyond your means.

Myth #2: Holding a credit card balance is good for credit

The amount you owe lenders accounts for 30 percent of your FICO score. The smaller your credit utilization ratio (the amount of debt you hold compared to your total available credit), the better your score. This means if you can avoid carrying a balance, you should do so. However, responsible use of a credit card allows you to buy big ticket items, such as a kitchen appliance or laptop, that you can't pay off all at once. So, sometimes you will have to carry a credit card balance. When you do, credit lenders recommend that you keep your credit utilization ratio below 30 percent -- the lower, the better. Keeping a low credit utilization ratio demonstrates that you're more likely to be able repay your debts, positively affecting your credit score.

What to do: Pay back your credit card balance in full every month as much as possible. When you're not able to do so, then seek to maintain a debt-to-credit ratio below 30 percent across all your credit card debts. (See also: How to Use Credit Cards to Improve Your Credit Score)

Myth #3: Paying the cellphone bill builds your score

Since some cellphone carriers may run a credit check to decide whether or not to approve you for financing, you may think that those cellphone carriers report your on-time payment history back to the credit bureaus. Payments to service companies, such as cellphone carriers, electricity providers, and natural gas providers, aren't reported back to the credit bureaus. (However, Experian does provide eligible renters the option to make their rent payments count toward their credit history.)

What to do: Don't sign up for a cellphone plan thinking you'll get a boost in your credit score. Do continue paying your cellphone bill (and all other bills!) regularly on-time. If your cellphone account were to be sent to collections, then the cellphone company would surely report that info to all credit bureaus.

Myth #4: Choosing a popular card will benefit you

A 2016 study of 20,206 credit card users by J.D. Power found that at least one in five credit card holders have a card which has fees or rewards not aligned with their actual purchase habits.

In the hunt for bigger and better rewards, 20 percent of credit card holders end up with a card that doesn't match their needs and would be better served by a different rewards card, or even one without any without rewards at all and a lower interest rate. Here's an example from the study: One of the reasons that 44 percent of airline co-branded card holders appear to have the wrong card is that those individuals aren't spending at least the necessary $500 per month to gain enough rewards to cover the average annual fee of $75. (See also: Cash Back vs Travel Rewards: Pick the Right Credit Card for You)

What to do: You don't just want to follow the crowd when choosing a credit card. Stack up your current credit card against others and figure whether or not it's time to find a new card more suitable to your lifestyle. Check out our guides on how cash back cards really work and choosing the best travel rewards credit card to find the card that fits your lifestyle.

Myth #5: Believing there's only one credit score

That free credit score on your credit card statement may not be the same one used by a lending officer reviewing your application for a mortgage or car loan. Did you know that there more than 50 different types of FICO scores? Lenders have several options to choose from depending on their industry and preferred credit reporting agency.

What to do: If you get a free credit score through your card, check with the card issuer whether or not that score is a FICO score and what type of FICO score it is. This will help you know whether or not you can do an apples-to-apples comparison with the one used by your lender. Also, inquire with your lender if they can give you a target range for your loan to be approved. (See also: FICO or FAKO: Are Free Credit Scores From Credit Cards the Real Thing?)

Like this article? Pin it!

This article is from Damian Davila of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Why Your Credit Score Matters in Retirement

Dan Rafter — Mon, 30 Jan 2017 10:00:08 +0000

You've left the working world and are ready to enjoy your retirement years. So, you might be forgiven for thinking that your days of fretting over your FICO credit score are over.

Guess what? They're not. Your three-digit credit score matters even in your retirement.

Lenders of all kinds, not to mention credit card providers, rely on your FICO credit score to determine how well you've managed your credit in the past. Having a low score can hurt you financially, even after you've left the days of commuting to work behind you.

Why Scores Matter

Your FICO credit score — you have three, one each maintained by the credit bureaus of Experian, Equifax, and TransUnion — is a key number throughout your adult life. Lenders rely on these scores to determine if you can qualify for loans. And if your score is low, even if you do qualify, you'll pay higher interest rates.

Generally, lenders consider a FICO credit score of 740 or higher to be an excellent one. Scores under 640 are generally considered weak by lenders, and will leave you with higher interest rates on the money you borrow.

As you make your way through adulthood, lenders will check your scores as you apply for auto loans, mortgages, or credit cards.

When you retire, the odds are high that you will no longer be applying for mortgage loans. However, this doesn't mean that credit scores will no longer play a key role in your financial life.

The Best Credit Cards

If you want to qualify for the best credit cards, including ones with the most generous rewards programs, you'll need a high FICO score. Financial institutions only pass out their best credit cards to those customers who've proven that they have a history of paying their bills on time.

Having a high credit score is how you'll prove to banks that you are financially responsible. And if you want to qualify for the best credit scores during your retirement, you'll take steps to make sure that your credit score is strong in your 60s, 70s, 80s, and beyond.

A New Car

Maybe you plan to buy that dream car after retirement. If you can't pay for it in cash, you'll need an auto loan. And if you want to qualify for an auto loan with the lowest possible interest rate, you'll need a strong FICO credit score.

Auto lenders will check your credit score when you apply for financing. So make sure that your score doesn't take a dip after retirement.

Auto Insurance Rates

If you buy a new car, you'll need auto insurance, too. Guess what? Auto insurers rely on a variation of your credit score to help set their rates. Again, you'll want the highest possible credit score if you expect to qualify for the most affordable auto insurance.

Auto insurers use something called a credit-based insurance score to set rates. If this score is strong — and your driving history is good — you'll usually qualify for lower insurance rates. Your credit-based insurance score doesn't factor in your job or income. But it will rise if you pay bills such as your credit card payments and mortgage on time every month. It will fall if you miss payments, make payments 30 days or more late, have too much debt, or have accounts that have been sent to collections.

Refinancing to a Lower Monthly Payment

The goal is to enter retirement without having a monthly mortgage payment. That doesn't always happen, though. And if you are still paying off a mortgage loan when you enter your after-work years, you might want to someday refinance that home loan to one with a lower interest rate. Lowering your rate will give you a lower monthly payment. That extra cash each month could be important once you're living on a fixed income.

To qualify for a refinance, and for the lowest possible interest rate to make such a move financially worthwhile, you'll again need a high credit score. If your FICO credit score is 740 or higher, the odds are good that you'll qualify for an interest rate low enough to make refinancing a smart financial decision.

The lesson here is obvious: You can't put worrying about credit scores behind you just because you've entered retirement. The best move is to continue taking the steps that help guarantee a strong credit score — paying your bills on time and keeping your credit card debt low — even after you've left the working world.

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

FICO or FAKO: Are Free Credit Scores From Credit Cards the Real Thing?

Damian Davila — Thu, 19 Jan 2017 11:00:10 +0000

Building up and maintaining a good credit score is a great step toward achieving your financial goals. An excellent credit score can open doors to better financing for your dream home or a more reliable set of wheels. When used properly, a credit card can help you start off, continue to improve, or even build back your credit history. Your on-time monthly credit card payments count as 35% of your FICO credit score, after all.

The traditional way to find out your credit score involves contacting one or all of the credit bureaus and paying for their service to provide your score. Thanks to FICO's Open Access initiative in November 2013, however, credit card users may be able to access their scores free, every month on their statements. More than 50 lenders, including American Express, Bank of America, Chase, and Capital One, offer their customers free credit scores.

It's important to note, though, that the score you get on your statements may not reflect the actual score your mortgage lender or car dealership is looking at when considering you for a loan.

Case Study of a Free Credit Score

I have accumulated a few credit cards over the years, and some of those cards offer me a free credit score. I've looked at the credit scores indicated on my latest statements from each of these cards, and the scores vary by up to 59 points.

So, what's going on? Which of these credit scores can I trust?

The problem is that these credit cards are all using different factors and ways to calculate the score. Some of these factors include:

The date my credit information was pulled;
The credit reporting agency they use; and
The type of credit score they are reporting.

Given these different factors, you can clearly see that not all free credit scores are alike. It's important to know what credit data you're getting to correctly evaluate your financial health.

3 Criteria to Analyze Your Free Credit Score

Based on these findings, let's review key questions that you should ask yourself about your free credit score from an existing card, or one from a card that you're planning to open.

1. Is It a FICO Score?

Not all credit cards offer the same free credit scores. Capital One offers free TransUnion VantageScore 3.0 scores to all of its cardholders and, since March 2016, to non-customers through its CreditWise credit monitoring service. CreditWise is available as a smartphone app and allows you to sign up for a new account within the app. (See also: 7 Apps That Monitor Your Credit for You)

Different credit cards use different algorithms to calculate scores. Generally, a FICO credit score provides you a closer look to what your lenders would actually get when pulling your credit score on their own. Credit scores other than a FICO are considered "equivalency scores" or "educational scores," and are often referred to as "FAKO" scores. While a FAKO score may give you a general idea of where you stand with lenders, it may not be accurate enough to tell you whether or not you'll get approved for a loan.

2. If It's a FICO Score, Which One Is It?

FICO has been in the credit score business for over 25 years and it has developed more than 50 types of credit scores! Most credit card companies offering a free FICO score provide the FICO Score 8. The key differentiating factors of a FICO Score 8 are that this score:

Gives a bigger weight to cards that have a balance close to the cards' limit;
Is more forgiving than other FICO score versions to one-time late payments of at least 30 days;
Provides a bigger penalty for numerous late payments;
Reduces "tradeline renting" benefit (a credit repair practice in which individuals with poor credit are added as an authorized user to a stronger credit account); and
Ignores collection accounts with an original balance under $100.

3. What FICO Score Will Your Lender Use?

Depending on their industry and preferred credit reporting bureau, lenders can use different scores. Here are some examples provided by FICO:

According to FICO, the FICO Score 8 provided for free by most credit card companies is most useful when applying for a credit card. For other purposes, your FICO Score 8 may not appropriately predict your likelihood of not paying as agreed in the future of a specific credit obligation.

The Bottom Line: Should You Sign Up for a Free Credit Score From Your Credit Card?

Yes, you should definitely sign up for that free credit score from your financial institution as long as it's a FICO score. The main reason is that the lowest price offering from FICO (9 FICO scores, including FICO Score 8, and Equifax credit report monitoring) is $19.95 per month or $219 per year. If your current card doesn't offer you a credit score or you're looking to take advantage of a balance transfer with a 0% promotional APR, here are Wise Bread's recommendations on best credit cards that offer credit scores.

Having access to your free FICO Score 8 will allow you to save money on credit monitoring fees until you get closer to the acceptable range that your lender is looking for. Once you're closer to your target score, find out from your lender what score they are using and consider signing up for the myFICO score tracking service that gives you access to that specific score (ask for score name and company that issues it). While this option may cost up to $29.95 per month for a couple of months, it will allow you to have a more accurate picture than your FICO Score 8 and prevent a hard pull from your lender. Remember that each hard pull on your credit history slightly brings down your credit score, so it's a good practice to minimize hard pulls.

Of course, make sure to read the fine print on the service agreement with myFICO so you don't miss the deadline to prevent a charge for the next month.

This article is from Damian Davila of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

7 Apps That Monitor Your Credit for You

Damian Davila — Tue, 06 Dec 2016 12:00:17 +0000

The average FICO credit score of U.S. consumers is 695, according to the latest data from the FICO company. If you think this number is encouraging, you'll also be glad to hear that 54.7% of Americans are able to score at least a 700!

This data proves that it's very possible to improve your credit score. There's no excuse these days for not monitoring your credit. Credit score monitoring? There are apps for that! Let's review some of the best free and easy to use apps available for giving your credit score a boost.

1. Credit Karma

Claiming that you can sign up for a new account within two minutes, Credit Karma's app offers free credit score tracking. Your score and list of reports are updated weekly. Credit Karma offers a credit report card, which breaks down every factor contributing to your credit score health, such as open credit utilization rate and average age of open credit lines, and helps you understand how your actions affect your credit score.

Keep in mind that Credit Karma shows you a Vantage 3.0 credit score, which isn't the same as a FICO credit score. The app allows you to track your credit score from TransUnion and Equifax (two of three main credit reporting bureaus, the third one is Experian). To learn more details about Credit Karma, take a look at our review.

2. Mint: Money Manager, Budget and Personal Finance

Besides being a free debt management tool, Mint offers a free credit monitoring app that provides an easy-to-understand summary of how you can improve your credit score. The credit score provided under any of these apps is the Equifax Credit Score, which is a proprietary credit model developed by Equifax.

By connecting your bank accounts, credit cards, and investments accounts to your Mint account, you'll have a comprehensive picture of all of your finances, too.

3. Credit Sesame

Credit Sesame's app offers you a peek into your Experian National Equivalency Score (ENES). While the FICO credit score ranges from 300 to 850, the ENES ranges from 360 to 840.

By using this alternate credit scoring model, Credit Sesame is able to perform a "soft" pull on your credit history and show you how much you owe, what your current interest rates are, and what your credit score is.

Additionally, Credit Sesame offers you some refinancing options in partnership with Lending Club to pay off higher-interest debt. To help you understand whether or not this would be a good fit for you, Wise Bread took a closer look at Credit Sesame' services and the steps of the loan process application process through Lending Club.

4. Credit.com

Credit.com is another option to access your Experian National Equivalency Score and Vantage 3.0 credit score at no cost. You'll receive a grade, ranging from A+ to F, for each one of the five factors affecting your credit score: payment history, debt usage, credit age, account mix, and number of inquiries.

Through its visual aids and specific action items, this app allow you to spot credit blunders and understand how to fix them.

5. Experian

Since so many of these apps use the credit rating model from Experian, you may be wondering if you can just go straight to the source. Yes, you can! Through the app you'll monitor changes to your Experian credit profile and have the option to sign up for push notifications directly on your device whenever a change takes place. Your free Experian credit report is updated every 30 days.

6. TransUnion

The credit reporting bureau allows you to check your TransUnion credit report from your smartphone. Similar to the FICO credit score, the TransUnion credit score ranges from 300 to 850. Still, remember that the FICO and TransUnion credit score aren't the same.

7. CreditWise

CreditWise offers free credit monitoring services from Capital One. You don't need to be a Capital One customer to sign up for a new account. If you're an existing user of the Capital One CreditTracker service, you can use your existing username and password that you use at the CapitalOne.com site. Every week, this app will provide your TransUnion credit score. A differentiating factor of CreditWise is its credit simulator, which allows you to simulate ways to improve your TransUnion credit score.

The Bottom Line: Know Your Score!

FICO maintains a total of 28 different FICO scores, which are widely used by issuers of home, auto, and credit card loans. Remember that each one of these apps offers a free snapshot of a credit score based on a separate model and that snapshot is only for educational purposes. If you want to get the actual FICO credit score, you'll have to pay at least $19.95 per month.

While the advice provided by any of these services can be valuable to improve your credit score, your potential lender may be working with a very different score than the one gleaned from an app. If you're working toward meeting the requirements for a mortgage or auto loan, ask your lender what credit score she's using. That way, you'll choose the app that can provide a more accurate estimate.

Like this article? Pin it!

This article is from Damian Davila of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What Is a Good Credit Score and Why Is It Important?

Kris Majaski — Fri, 20 May 2016 10:30:04 +0000

Credit scores can be confusing, especially with so many different models and algorithms available. Plus, it’s easy to mess up your credit rating and end up with bad credit without even realizing you’ve done anything. Here’s what you need to know about credit scores and increasing your credit rating. (See also: How to Rebuild Your Credit in 8 Simple Steps)

How Important is a Good Credit Score?

Credit scores don’t usually get the attention they deserve and we don’t realize how important they are until we go to get a loan and realize we’ve somehow ruined it. Because credit scores are one of the only ways for lenders to assess a borrower’s risk and can mean the difference between not just qualifying for the loan, but also paying hundreds to thousands more in interest, it’s important that you diligently work on keeping a clean credit file.

The most crucial role that credit ratings play in finances is in the interest rate. If you have a poor or bad credit rating, you are going to pay a much higher interest rate than someone with an excellent rating, if you are approved at all. When it comes to settling down and buying a house, your credit score can become one of the most important numbers in the process. A good credit rating can help in other situations including:

Employment. Not all employers require credit checks, but if you are in finance or a position requiring that you handle the company’s money, bad credit can end up hurting your chances of landing a new job. The idea behind checking credit for certain positions is that if you can’t manage your own finances, you may have difficulty managing other people’s money as well.

Lower Insurance Rates. Bad credit can cost you in other areas besides higher interest rates on loans and credit cards. It can also affect your insurance rates and cost you hundreds more than if you had a better credit score.

Qualifying for Rentals. If you have poor credit, it isn’t just difficult to qualify for home mortgages. You may also be denied rental opportunities simply because your credit file shows that you may be at risk of not paying your rent.

Utilities. Unfortunately, you may not be able to get your utilities hooked up in your name with bad credit. Although this doesn’t happen all the time, credit problems can prevent you from getting necessary utilities turned on in your new home.

What Is a Good Credit Score Range?

Although generally “good” is sufficient for most things like kicking ability in kickball or rating the flavor of an apple pie, in the world of credit scores, it’s not exactly ideal. A good credit score is often considered within the range of 700 to 749, but the goal if you want the best credit cards and lowest interest rates, is to strive for an “excellent” credit rating, which is 750 and higher, according to FICO and VantageScore.

What Is a Bad Credit Score?

On the other end of the credit scoring model are bad credit scores, which can make it difficult to qualify for credit cards or loans. Bad credit ratings are typically 600 or below. This, however, doesn’t mean you are doomed never to have a credit card. There are lenders and credit card issuers that provide financial products for those in the “bad credit” range. However, in addition to high APRs, you can expect to pay extra fees that you won’t find on higher-credit products. (See also: Good, Bad, or Excellent: What Does Your Credit Score Mean?)

In short, the credit score range from bad credit to excellent credit is usually:

Bad Credit – 600 and lower

Poor Credit – 600 to 649

Fair or Average Credit – 650 to 699

Good Credit – 700 to 749

Excellent Credit – 750 and higher

Where to Get Free Credit Scores

Many financial companies provide services which allow you to check and monitor your score for a monthly or annual fee of approximately $29.95 per month, depending on the scoring model. There are also a number of agencies and credit card issuers which offer this service free to its customers and cardmembers. You can get your credit score free with some of the following companies:

Credit Sesame. Score pulled from the TransUnion database.

Credit Karma. VantageScores from the three major credit bureaus.

There are also credit cards that offer free credit scores to their card holders.

FICO and Vantage: Types of Credit Scores and Scoring Models

Another point of confusion when discussing credit scores is which score you are measuring. The score used by most lending institutions is the FICO score, which means if you want to see what your card issuer is seeing, this might be the score to keep your eye on. However, there are those that use other scoring systems, and you may check and monitor those scores with any of the following agencies as well:

FICO score: Provided by FICO and also allows you to track and monitor your score with all three credit bureaus. MyFico.com provides services for restoring your identity in the event it is stolen and detecting threats through identity theft monitoring as well.

VantageScore: This score is more often the free version offered by different financial services and is among the most popular scores as well. The VantageScore has some differences such as how it scores paid-off collections, alternative data like rent and utility payments, and how it rates how recently a credit account was used. This score was created by the credit bureaus, TransUnion, Equifax, and Experian.

In addition to FICO and VantageScore, each credit bureau provides its own scoring model as well, which is one of the reasons they joined forces to create the Vantage scoring model in the first place. The scores for each bureau includes the following:

PLUS score: Experian’s scoring model usually not used by any lenders. It ranges from 330 to 830.

TransRisk score: TransUnion’s score based on its own credit reports. This score ranges from 100 to 900 and is used to predict risk.

Equifax score: The Equifax version ranges from 280 to 850 and like the PLUS score, isn’t used by lenders but is designed for educational purposes only.

The range of scores will vary depending on the scoring model, but as an example, may include FICO scores from 300-850, Experian scores from 330-830, Equifax and TransUnion from 300-850, and VantageScore 300-850. Although they are all different scoring models, they are close enough that no matter which one you prefer, you can get a general idea of what the lenders see when they check your creditworthiness. And, if you’re working on increasing your score, you can monitor any of them and assume that if one increases, all of them will typically adjust in a similar manner. It’s important to note that whether it’s a loan, mortgage, or credit card, the FICO scoring model is the most widely used.

What Affects Your Credit Rating the Most?

Because credit scores are intended to gauge your risk and the ability to repay your loans and credit cards, it’s important to make sure you pay on time and manage the accounts responsibly in order to maintain a positive credit rating. However, there are other factors involved in calculating your credit score, depending on the model you use. For example, FICO scores are calculated according to the following activities: (See also: What Impacts Your Credit Score the Most?)

35% Payment History – the number of times you make late payments on your accounts.

30% Amounts Owed – how much you owe. Could be an indication you are overextended.

15% Length of Credit History – how old your accounts are and the last time you used certain accounts.

10% Credit Mix in Use – whether you have a mix of different accounts like credit cards, retail, installment loans, and mortgage loans.

10% New Credit – if you have a number of new accounts, it could indicate a higher risk.

How VantageScore is Calculated

In comparison, VantageScore 3.0 is calculated similarly with some minor differences, with more focus being placed on recent credit than payment history or credit utilization:

30% Recent Credit – whether you have multiple new accounts.

28% Payment History – late payments and payments made on time.

23% Credit Utilization – how much credit you have versus what you owe.

9% Credit Balances – how much you owe.

9% Depth of Credit – your credit mix and length of your credit history.

1% Amount of Available Credit – the total amount you have available among all credit accounts.

Vantage Scores also include a letter grade which rates your likelihood of a charge off or paying your accounts on time. For example, 901 to 990 is considered an “A” grade, equal to 1 charge off for every 300 consumers who pay on time. The grades lower to “F”. which is 501 to 600 and equal to 1 charge off for every 1 consumer paying on time.

Increase Your Credit Score by Checking Your Credit Reports

One of the most shocking and frustrating things that can happen when you check your credit score is that you find it is lower than you expect. More shocking is if it happens to be due to an error on your credit report or a mistake that you didn’t even know existed. This is just one of the many reasons it’s important to regularly check your credit reports and address any errors or changes immediately. This is also one of the first places to start if you’re going to begin your journey to improving your credit score. You can get your credit reports free in any of the following ways:

One free per year from each bureau through annualcreditreport.com
Denial of credit, insurance, or employment
Unemployed and planning to look for a job within 60 days
On welfare
Inaccurate because of fraud or identity theft

If you don’t qualify for free credit reports, you’re probably going to pay either a monthly or annual fee to access one, depending on the credit bureau. Because paying for credit reports from all three bureaus can become costly, it’s best to set an alert or reminder to get your free reports online each year with annualcreditreport.com so you can check them all for any errors. You can then notify each bureau online of any errors or corrections that need to be made to your credit reports.

Ways to Increase Your Credit Score

Once you’ve become aware of the importance of your credit score, you’ll likely want to work on increasing it. While the most common ways to get your numbers up into the excellent credit score range involve making your payments on time, there are other ways to get the boost you’re looking for if you want the best credit rating possible. Some of the easiest ways to increase your score include the following:

Check credit reports for errors and submit corrections
Catch up any late payments or missed payments
Pay down balances so that you owe 30% or less of your total credit available
Get a secured credit card (if you have bad or no credit) to start a new, clean line

If you have a number of problems on your credit reports, it’s best to work on the ones damaging your credit the most, according to the percentages of the scoring calculations. For example, in most cases catching up late payments and missed payments can make the biggest difference in your credit rating. Once payments are caught up you can work on decreasing your credit utilization.

Keep Your Excellent Credit Score

When you have increased your credit rating, you’ll need to make sure you practice other tips for maintaining excellent credit. These tips for keeping a good credit score include paying every bill on time (set up reminders and alerts if needed), using credit only when you need to, limiting your new accounts, keeping old accounts open, and mixing up your types of credit with a combination of credit cards, loans, retail, and mortgage accounts. Also, make sure your credit mix includes revolving, installment, and open lines of credit.

Improving or increasing your credit rating isn’t an easy task, and it will take some time. However, as long as you know what you’re working with, you’ll be able to say you have a great credit score and qualify for the best rates available, in no time.

This article is from Kris Majaski of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: