Credit Scores

If you are above the age of eighteen and have not heard of a credit score you need to go ask someone.  For everyone else who has had the idea of a good credit score being the key to happiness since you were a child, this is for you.

The first things I would like to tell you are as follows;

Credit scores have nothing to do with you as a person

A person who pays everything off can still be hurting their score.

Your score is a tool to show how much money a creditor can make off you.

I can go on and on about how bogus most of what you were told is, but I’d rather give you some helpful information.  I have worked for the creditor/banking side of the issue and now work against those establishments.  This has given me an inside view of both angles.

I will not outline every aspect of your credit score, but I will tell you some key facts to improving your score.

- Paying comes in two major ways.  1.) Paying a purchase off in a single complete payment. 2.) Paying over time to pay down a balance until complete.  To improve and keep the best credit status you must perform both of these payment types. Doing only one of these can actually contribute to a lower credit score.

- Many people like having a single emergency card they never use.  This can also hurt you in a few ways and at the very least is not helping you.  The highest credit scores are held by people who hold multiple credit products and most importantly, use what they have. For your average person that means between two to five credit products and actually putting a balance on them.

- No credit history is worse than some bad marks on your history.  Look at it from the creditor’s viewpoint.  If Sue is an unknown and you know Tom goes late all the time, but eventually pays back all the money, which would you rather lend twenty bucks to?  Tom is the logical choice.  Not only can you guarantee a return from Tom, he is going to give you a thirty dollar late fee and you will get interest charges in the long run.

Now I will hit you with the final and most backward piece of this scenario using Sue and Tom once more.

This time let’s assume we have seen Sue’s history and she always buys big ticket items and pays them off a few days later and Tom is still going ten to thirty days late, but always eventually catches up and pays his bills.  Now my parent’s would have told me Sue would have a higher credit score, but based on this one fact profile they would be wrong.  Tom would have a higher score because a credit score is based on who is better for the banks to lend to.  A bank will not make any real money off Sue where Tom may end up paying double for everything and is still almost a sure bet no matter the purchase.

I hope this helps you see your score in a truer light and why what you have been taught leads you to make bad choices based on what will affect your score.