Improving your credit score is not something that can be done quickly. It takes time, patience, and commitment. There are no quick and easy solutions like some companies may claim. The best advice to improve your credit might be to pay your debts on time, but we understand that there are situations that may prevent us from meeting the commitments made.
Here are some tips to improve your credit score:
- Pay your bills on time.
- Defaults and money collection processes can have a considerable negative impact on your score.
- If you're behind on your payments, catch up and stay up to date.
- If you always pay your bills on time, your score will improve.
- Keep in mind that canceling the balance of an account that has already been passed to the collection agencies does not mean that the negative information will disappear from your credit report
- The information can remain on your credit report for seven years.
- If you're having trouble paying your bills, contact your creditors or consult with a credit counselor.
- This won't improve your score right away, but it can put you on the path to healthy credit management and timely payment, which will ultimately benefit your score.
- Keep your credit card balances low.
- If you have a lot of outstanding debt, your score may suffer.
- Pay off your debt instead of transferring it from one account to another.
- The most effective way to improve your score in this area is to reduce your outstanding credit balance. In fact, if you owe the same amount but have fewer open accounts, you could lower your score.
- Don't eliminate credit cards you don't use as a short-term strategy to improve your score.
- Don't get new credit cards that you don't require in order to get more credit. This could backfire and even lower your score.
- If you haven't had credit for a long time, don't open too many accounts in a hurry.
- New accounts will lower the average age of all your accounts as a whole, which will have a very important effect on your score if you don't have additional credit information.
- When you find out and compare interest rates for a particular loan, do so within a short period of time.
- Credit scores distinguish between what is a search for a single loan and what is a search to try to open several new lines of credit, in part because of the period in which the inquiries are made.
- Opening new accounts responsibly and paying them on time can improve your score in the long run.
- Be aware that requesting your credit report and examining it will not harm you in any way. This will not affect your score, as long as you request your report directly from the credit reporting agency or through an organization authorized to provide credit reports to consumers.
- Apply for and open new credit accounts only when necessary.
- Don't open new accounts just to improve the credit mix on your record, as it probably won't help you raise your score.
- Have credit cards, but handle them responsibly.
- Overall, having credit cards and term loans will improve your score. People who don't have credit cards, for example, are often a higher risk than those who have demonstrated responsible credit management.
- Note that closing an account does not mean that it will disappear from the report. A closed account will continue to appear on your credit report and may be part of your score.
How do I solve credit problems?
Our credit report influences purchasing power, getting a job, renting or buying a home, and getting insurance. An adverse credit report can only be deleted over time.
Creditors can report negative information to the credit report for seven years, and in the case of bankruptcies, up to 10 years. There is a standard method for calculating the seven-year period during which correct negative information may appear on your report. Generally, the seven years begin to be counted from the date the event occurred.
When you are having trouble meeting your debt payments, it is very important that you contact your creditors. Try to reach an agreement or plan where you make reduced payments so that you can meet them. It is very important that you make these agreements on time and that you do not wait for the accounts to incur debt or be passed to collection agencies.
Some tips for resolving credit problems:
- Contact the company or creditor of the debt you want to query and send them a letter with return receipt.
- Request verification of the debt in writing.
- Keep evidence of all original documents (receipts, sales invoices, and billing statements). These documents may be required to prove your claim. Only send copies.
- Don't believe companies that offer you quick and easy solutions.
- Be persistent, as resolving your credit problems can take time and effort.
- Credit repair companies will charge you a fee to do the same thing that you can do at no cost.
- Consider seeking help from a professional if needed. There are agencies that can help you prepare a budget and negotiate a payment plan with your creditors.
If possible, look for an organization that offers in-person counseling services. CONSUMER has offices across the island where they can give you advice. It has certified counselors in the areas of credit, money, debt management, and budgeting. Counselors can help you analyze your financial situation and will provide you with a personalized plan to resolve your money problems.
Tips for using your credit card
Credit cards can be very convenient, but if we don't use them correctly they can become a terrible burden. Here are some tips:
- Pay on time
- Paying your credit card on time helps you avoid additional late fees and having your interest rate increased as a penalty. If you pay on time, you will have good credit history and be able to get lower interest rates.
- Don't go over your credit limit
- When you exceed the credit limit on your credit card, the creditor may charge or increase penalty rates. Monitor the charges you make to your credit card so you can avoid these penalties and pay less each month.
- Avoid unnecessary costs
- Creditors may charge you fees for late monthly payments, requesting cash advances, and transferring balances. Check your credit card agreement for the costs associated with these transactions.
- Pay more than the minimum
- Try sending a payment greater than the payment indicated by your monthly statement. That way, you will be able to reduce the balance sheet, pay off the debt in less time and pay less interest.
- Be aware of changes in your credit card policies
- Credit card companies will inform you about changes in fees, rates, and other aspects. By reading these changes to the terms, you can decide whether you will continue to use your card in the same way or change the way you use it.
Credit
Credit is the term used to describe a transaction in which a person receives merchandise, money, or services for very little or no money, but promises to pay an amount of money within an agreed time. The person or business that extends credit to an individual charges a fee in exchange for the credit granted.
If credit didn't exist, consumers would have to save the entire amount to make major purchases. Credit helps consumers improve their lives and enables them to achieve greater financial well-being.
Types of credit
- Traditional Credit - A loan where payments are established for a period of time. These payments include insurance against any unintended situation.
- Consumer Credit - A short- or medium-term loan (1 to 4 years) that is used to acquire goods or cover payment for services.
- Commercial Credit: A loan made to companies for the acquisition of goods, payment of company services or to refinance debts with other institutions and short-term suppliers.
- Mortgage Credit - Money given by the bank or financial institution to acquire land or a property that has already been built, or build homes, offices and other real estate, with the mortgage guarantee for the acquired or built property. The term to be repay this loan can be medium or long term.
- Consolidated Credit - This is a loan that combines all the other loans you have into a single new credit. Consolidating your loans allows you to lower the interest rate on short-term loans and pay less monthly.
Credit Evaluation Factors
Creditors evaluate five aspects when considering your credit application. These factors are as follows:
- Economic conditions - They refer to the economic environment that exists at the time the bank grants a loan. The bank makes the decision to grant a loan on the basis of the economic conditions that prevail in the country or region in general, geographical, industrial and market terms.
- Ability to pay - It is demonstrated by payment stubs of the company or business in which you work. This shows that the applicant has sufficient resources to pay the loan on time.
- Capital - Refers to the money or assets that the debtor possesses, which can be used to meet the debt in the event of becoming unemployed or other form of income.
- Collateral (collateral) - In some types of credit, the creditor can request some property or asset as collateral while the credit is being paid. This is known as collateral.
- Character - The character of the client refers to the moral solvency of the person, that is, the trajectory of being a good payer of their debts.
Basic credit information
As you probably know, a good credit history can be one of your most important assets.
The credit information system benefits individuals and society. Based on your payment history, current credit utilization, and inquiry history, lenders evaluate your credit risk before making the decision to approve your credit application. These grantors review these details of your financial behavior through a credit history or report.
Credit reports enable creditors to make objective and accurate decisions in loan approvals. An individual with a favorable credit history and little debt will have an easier time obtaining new loans on the best terms.
What does the credit report include?
The credit report collects information from your creditors and from public information sources. This information is regularly updated in the credit reporting agencies' database. With this information, you as a consumer can show the market that you are a person in good financial health.
When making credit decisions, each creditor has its own rules for deciding whether to approve a credit application and the amount of the loan to be granted. The credit history is only one piece of information used by grantors in their analysis process.
TransUnion is not involved in the credit decision process. Our role is to provide credit information to our customers in order to help them make better decisions.
How credit information benefits all of us
Sharing credit information contributes to the financial stability of the country and the security of consumers and businesses. As a consumer, you benefit from objective and effective decisions made by credit grantors, and you can also count on greater financing opportunities. It enables businesses to make informed decisions, which mitigates risk and decreases the chances of fraud. This can allow lower interest rates to be granted to those consumers who represent less risk. Furthermore, a safe and financially stable economy can foster more jobs, facilitate an environment of access to loans and help boost economic growth.
Credit score
A credit score is known as a credit score. A numerical snapshot of a consumer's credit history at a specific point in time, used by companies to better understand the consumer's financial health. The credit score is generated by using a mathematical formula that uses data from an individual's credit history, and displays the likelihood of a default event occurring in the future.
Your credit score is not based on your race, gender (sex), age, income level, country of origin, sources of income, religion, or marital status. Income level is not a factor that is taken into account.
The five factors that are used to give you that score are:
- Payment history (35%) – A good record of on-time payments can help raise your credit score.
- Debts payable (30%) - High percentages of utilization of the credit limits granted may suggest high indebtedness, low balance sheets may favor credit evaluation.
- Credit experience (15%) – A credit trajectory can mean lower levels of risk.
- Credit applications (10%) – When a credit grantor evaluates a consumer's application, it causes an inquiry fingerprint to appear on their credit file. Consumers who apply for new credit in moderation are generally considered less risky than those who apply for credit more frequently.
- Types of credit (10%) – A good credit risk profile has a reasonable and logical number of accounts and loans.
Credit score myths
There are a few myths about credit scores. If you are in the process of applying for a loan, be aware of these myths to avoid being fooled by them.
- Myth 1: Applying for new loans affects your credit score, but requesting a copy of your credit report doesn't.
Applying for a new loan is not what affects your credit score; what does is the number of applications or inquiries that are made on your credit report. It is suggested that no more than three requests be made in the period of 90 days. If you made more of these inquiries on your credit, your credit score could be lowered.
If you want to reduce the loss of points, we suggest that you ask creditors about acceptance conditions in order to find out if you meet that creditor's requirements.
The FICO credit score treats multiple applications made within 14 days as one. For each application, FICO deducts five points from the credit score.
You can request a copy of your credit report free of charge once a year from all three credit bureaus: TransUnion, Equifax, and Experian. You can visit the website: www.annualcreditreport.com for more information.
- Myth 2: Closing bank lines of credit will never help improve your credit score. It is true that opening many accounts harms your score, but once they are opened, it is impossible to repair the damage.
When calculating the credit score, the difference between the available credit and the balance sheet is taken into account.
Closing lines of credit will cause your borrowing percentage to change and could damage your credit score.
On the other hand, it is not recommended to close accounts that you have had for years since your credit history would reflect new credit. This could harm your credit score.
Instead of canceling and closing your accounts, you are recommended to start reducing the balances on your credit cards. This will help improve your credit score.
- Myth 3: All three credit reporting agencies use the credit score provided by Fair Isaac & Company (FICO) but under different names.
Each credit agency has a different name for a credit score. TransUnion knows it as Empirical, Equifax calls it Beacon Score, and Experian calls it Experian/Fair, Isaac Risk Model.
- Myth 4: For three years now, the formula used to calculate the FICO score ignores any reference to a debt consolidation or repayment plan that may exist in the person's financial past.
Creditors continue to report any delays in a payment plan or debt consolidation of their customers. If payments are not received by your creditor as scheduled, it will be reflected in your credit history and will affect your credit score.
Which is more convenient?
The use of debit cards has been increasing in recent years. Most banks include debit cards as a means of accessing the funds available in their accounts.
Credit cards allow us to pay for what we buy within a period of time. This is convenient for many people who do not have the resources to make purchases at that time.
So we must ask ourselves, why are more and more people preferring to use debit cards instead of credit cards?
Many people prefer debit because they don't accumulate debt and use what they have. For those who keep a budget and control their finances, the use of debit is more convenient, as they can have control of their expenses.
A disadvantage of using debit is that if fraudulent transactions are made on the account, the balance will be affected immediately and they will have to wait for the claim process for the funds to be returned. This could have a negative effect on their finances.
If the fraudulent charges were on a credit card, it does not directly affect our pocket, as we do not have to pay it for the duration of the claim,
Therefore, a problem with our debit card can destroy our personal finances. Should we stop using debit cards, then? No, because in addition to the psychological peace of mind of not having debts, debit cards can have some advantages:
- Debit cards do not have an annual fee, as they are associated with a bank account. With credit cards, an annual fee is often charged, especially if they are points or mileage program cards.
- If you have no credit history or if your credit history is not good, your credit card application may be denied. However, if you open an account at a bank, you will automatically have a debit card.
- You can now get debit cards with Visa or MasterCard, so they act as credit cards, too. This can be very convenient for people who do not have a credit card and need one to make purchases or reservations.
What does the credit report include?
The credit report collects information from your creditors and from public sources of information. This information is regularly updated in the credit reporting agencies' database. The credit report shows how a person performs after they have applied for credit. This is a record of all credit cards, loans, and other credit obligations applied for during a period. In addition, it contains personal information.
The credit report gives the creditor information about the accounts paid, those with an outstanding balance, and the applicant's available credit. In turn, the credit report indicates whether the applicant has any pending lawsuits, if they have been arrested, or if they have filed for bankruptcy. It also provides employment information and the applicant's places of residence. The information is constantly collected from various credit-granting bodies.
There are three national credit agencies: Equifax, Experian, and TransUnion. They collect information and then sell the collected data to banks, mortgage lenders, credit unions, credit card companies, stores, insurance companies, landlords, and employers. Creditors use that data to decide whether or not to approve applications for loans, credit cards, or home loans.
Each credit grantor has its own policies for accepting credit applications. Credit history is only one piece of information used by grantors in their analysis process.
Credit agencies do not enter into the creditor decision-making process; their role is only to provide customer information.
