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Here’s Why Your Credit Score May Have Recently Gone Up

Credit Scores and credit reports play a vital role in the life of most Americans today. It determines the interest rates consumers pay for the credit card, mortgages and car loans and can ascertain if they qualify for a loan or not. 

Your credit report may get a makeover as the three big reporting agencies (Experian, Equifax, and TransUnion) are doing things a little differently and have started excluding certain items from your credit report that used to damage your credit. This comes in the wake of a study by the New York Federal Reserve which found problems with credit reporting. It has recommended some reforms to improve the accuracy of their credit reports and also remove some negative items so that it can help consumers’ improve their credit scores. Some of the changes that can boost your all-important three-digit credit scores are:

CREDIT SCORE

1. Tax Liens and Civil Judgments

Because of improved standards for utilizing new and existing public records, Experian, Equifax, and TransUnion have scraped most of the tax liens and civil judgments from consumer credit files in July 2017. Again in April this year, they went a step further by deciding to remove all tax liens from credit reports. Once this data is removed some credit scores can go up by as much as 30 points.

According to an estimate by LexisNexis Risk Solutions, about 11% population had a tax lien or judgment removed from their credit file. 

2. Collections

Credit Bureaus have also been removing certain collection accounts from credit reports under the terms of the National Credit Assistance Plan (NCAP). Since the new rules came into effect in June 2017 some eight million people had collection accounts completely removed from their credit reports, according to the New York Fed.

3. Medical Debt

The new rules will make it harder for medical debt to hurt your credit scores. Medical billing process can be complicated and confusing. To give time to resolve medical issues the three important credit bureaus have agreed to exclude medical bills on credit reports until they are at least 180 days due. Another plus is that unpaid medical bills that later get paid by your insurance should be removed from the credit bureau files so that it does not linger on and damage your score.

4. Fines and Tickets

 Due to the recent changes by NCAP, library fines, unpaid gym memberships or traffic tickets that have been lurking in your life will now be removed from your credit records and not damage your credit score.

As a result of these changes consumers are now witnessing a steady stream of changes which have boosted up their scores and according to the findings of New York Federal Reserve report the:  

  • Credit scores of consumers’ have gone up by 11 points on an average.
  • 18% of people saw credit scores go up by 30 points. In some cases, this increase was enough to make a difference between qualifying for a loan and getting it turned down.
  • About 8 million people had collection accounts completely removed from their credit reports after the second half of 2017.
  • The study also found $11 billion reductions in the total collection account balances.

According to Bruce McClary, Vice president of Communications at the National Foundation of Credit Counseling, “If anyone has experienced a jump in their credit scores due to these changes, they should take advantage of the momentum and work towards improving their credit health.”

If your credit score has also seen an increase, you could consider calling your credit card company and negotiate a lower interest rate. This can result in major savings.

The other financial moves you could consider with this better score is taking out a new loan for a mortgage, refinancing your car, getting a better credit card or checking insurance rates, said Kimberly Palmer, the personal finance expert at NerdWallet.  However, you should be strategic, she added.

It is important to note that because of the prevalence of reporting errors, FICO recommends that you should double-check your reports for inaccuracies that can hurt your score.  The recipe to keep your score moving and reaching a good score is that you should consistently pay your bills on time and keep your credit utilization low. You should also apply for credit only when needed and reduce the amount of debt you owe as much as possible.

5 Ways Millennials Can Boost Their Credit Score

boost credit score

Millennials (people aged 18-34)  don’t fully understand what impacts a credit score than older generations but according to a recent study it does not stop them from trying to improve their credit. They check their credit scores most and are trying actively to build and improve their scores according to Discover’s 2018 Credit Survey of US consumers.

If your credit score is lower than what you would like it to be then you are not alone as credit scores are influenced by many factors like   a long credit history (35%,), level of debt utilization(30%) the age of credit(15%)  mix credit(10%) and credit inquiries(10%). It is hard for many millennials to meet these criteria. But the good news is that you can boost your credit score this year by taking some concrete steps. Here are five steps that you can try.

Check Your Credit Report for Mistakes

You need to check your credit reports from time to time to see that they do not have any damaging errors by getting a copy each from the three major credit bureaus. In a study by the Federal Trade Commission in 2013 it was found that one in four consumers had a mistake on their credit reports that could have an impact on their scores. One in a five had an error that a credit reporting agency corrected after a dispute.

In order to ensure that you do not have any damaging errors on your credit reports you should get a free copy from the three major credit bureaus; EquifaxExperian, and Trans Union at  AnnualCreditReport.com. If you come across any errors you should submit a dispute online with the bureau that is reporting the error. You should explain why you believe the information is an error and provide details about what you are specifically disputing. (Including account numbers)

If there are big mistakes clearing them up  could lead to a great improvement in your credit score.

 

Lower your Credit Utilization Ratio

The amount you owe measured by your credit utilization ratio will account for 30% of your credit score.  It can be calculated by dividing the total amount of debt owed by a total amount of available credit. For example, if you have a credit card with a limit of $1,000 and your credit card balance is $200, then your credit utilization ratio is 20% for that credit card. According to Experian a lower credit utilization (using a small amount of credit loaned to you) is preferred.  So if you pay off your debts in time you could boost your credit score.  You should decrease your credit card debt as the amount you owe will make up 30% of your score. But, using too much of your credit can be a sign of repayment risk.

Do not Skip or Miss a Payment on a Credit Card.

 

Missing a payment or skipping even one payment on your credit card can lower your credit score.  It can cause it to drop by 100 to 300 points according to Bruce McClary, spokesman for National Foundation for Credit Counseling, a Washington, D.C.-based non-profit organization. This misstep can take you about two years to restore your credit score. So the first thumb rule is to pay your bills on time as this factor makes up 35% of your credit score. You can avoid late payments going forward by setting up automatic payments from your credit cards and other bills.

 

Have a Long Credit History

Having a relatively long credit history affects 15% of your credit score.  Millennials should not close credit card accounts they have opened several years ago as it shrinks a person’s available credit.

Your credit history can be longer if a relative who has a long and awesome credit history is willing to help you and can add you as an authorized user of one of their credit cards. This is one of the simplest and fastest ways to boost your  score. The old card will show up in your credit report and you can also get credit for the history of on-time payments This also means that you have access to your relatives line of credit. If you make purchases it will affect your relative’s credit utilization and it would be the ultimate responsibility of your relative for paying back what you borrow. So that means the relative needs to trust you to be responsible for your purchases. You can avoid purchases altogether –would be vital.

The Necessity of Credit Cards

One of the great ironies of earning a good credit score is that you must have credit to build credit. So having a credit payment history is very important as it accounts for 35% of your credit score. If you do not have a credit card do get one. You can open a credit card for small day-to-day purchases and it should be paid in full each month to build your credit history.

You need to have a mix of types of credit as it affects 10% of your FICO score. Having different types of credit accounts will also improve your  score. In addition to a credit card if you have an auto loan or mortgage that you make on-time payments each month or another credit card pay off each month it will help you to improve your scores.  Obtaining more credit cards at one time can lower your score more.

According to McBride’s you have to “keep your borrowing modest particularly if you have an existing car loan or student loan debt, ”and that  “ paying bills on time , keeping debts modest and paying your debts in time accounts for almost two-thirds of your  score”.

Call us now at (800) 400-ZINU(9468) for further details.