On this topic my viewpoint may differ from other debt educators. To some degree, you credit score does matter. And because it does matter, you should do what you can to maintain your good score and increase a poor score. Your score should not be a mystery.
Obviously, the overall goal is to be completely debt free. Free of mortgages, car payments, all debt. But in the meantime, it may make sense for you to obtain a mortgage or other large purchase.
In addition, your credit score is also often considered for jobs, housing and car insurance. Each important, and often necessary, reasons to be concerned about what is on your credit report as well as your scores.
There are three major credit reporting agencies; Experian, Equifax and TransUnion. If you have purchased an item on credit or have failed to pay certain obligations then this information is reported to one or more of the three credit reporting agencies by the creditor. Not every creditor will report to all three of the credit reporting agencies, so it is important to be aware of what is on each credit report.
Amid the increase in identity theft and credit card fraud, laws were recently passed that allow every person to obtain a free copy each one of their credit reports every year. Go to www.annualcreditreport.com for more information about your free report. If you have already obtained your credit report in the past 12 months, you can purchase another copy, usually for under $25.
Your credit report contains information about your account and history with each creditor. It is important to review each creditor file and ensure the information has been reported accurately. You can and should make attempts to correct this information.
Each credit reporting agency has procedures for disputing what has been reported on their respective websites. Under the law, they have time frames to address your dispute and if not confirmed by the creditor, remove the disputed information.
In addition to three credit reports, you have three different credit scores, one for each credit reporting agency. The scores can vary significantly based upon what has been reported to each one and the mathematical method each agency uses to calculate your score. Only information contained in each of the credit reports serves as a basis for each of your three scores; another reason to ensure that each of the reports are accurate.
Credit scores range from 300 to 850. Though every lender may vary on what is considered a "good" score, the following ranges may offer you some assistance in gauging where you are and where you would like to be. A score above 700 is considered good and the closer you get to 850 the better your score. A score between to 700 and 640 is fair. A score between 640 to 580 is poor and below 580 is very poor. The higher your score, the less perceived risk a lender may have in extending you credit.
If you have a "good" score - this information may not be important to you. If your score is not "good," do not lose hope. Your score does not determine your value as a person and even a "bad" score can be turned around. As in life, there are second chances with each credit reporting agency. This is because our credit scores change over time and steps can be taken - beginning today - to improve your score. Be purposeful. Develop a plan to increase your scores.
The following will get you started:
After pulling a copy of each of your reports and correcting any errors; two things will help you improve your score - time and effort. As time passes older negative marks have less impact on your score. Going forward, pay any credit you have incurred on time. For accounts that have been closed due to non-payment or are being reported as "charge-offs" (deemed uncollectable by the creditor), begin a plan of repayment. If the account has been sold to a collection agency, begin paying the collection agency.
Paying off the debt will not remove the debt from your credit report, but paying any obligation that is owed and changing the status to "paid" will help your credit score over time. To help in "rebuilding" your credit you may want to obtain a small account, such as a secured credit card. If you choose this route, do not max it out but keep a small amount on the balance and pay timely each month. Time is your friend and as long as you keep at it, you will see improvement in your scores.
Finally, if a large credit purchase is in your future, for instance a house, you may want start monitoring and planning six months to a year in advance of the purchase. A helpful tool in doing so is a monthly monitoring plan that updates you on changes in your credit score.
Each of the credit reporting agencies has credit score monitoring. There are also outside companies that can bundle this service for you. Weigh whether or not this expense makes sense for you on a monthly basis or if it makes better sense to pull your scores periodically leading up to your purchase.
A few things to avoid. Be wary of "credit repair" businesses. No one can remove a legitimate entry to your credit reporting agency. A company that promises to do this is looking to separate you from your hard earned money and if successful in removing legitimate information - is doing so illegally. Stay away from them. Also avoid multiple inquiries for credit - these can negatively impact your scores.
If you do make multiple inquiries for credit, do so in a short time period, within the same month, and then stop. Lastly, avoid any other credit purchase around the same time you intend on making your request for a mortgage. When you are ready to apply for your mortgage, your credit should be at its best - other inquiries around this same time may signal to the mortgage company that you are over-extending yourself.
Repairing your credit and increasing your credit score, combined with a goal towards debt freedom will reap immense rewards. The key is to create a plan and patiently follow through with your plan. The end result will be a sense of peace and accomplishment.