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Your Credit History and You

Posted on: 2019-05-02 // Categories: Personal Finances

credit history post header

Wondering about how your credit history affects you?  West Banker Dawn Henss, NMLS# 446589, answers some common questions.

When West Bank customers interested in borrowing money for the first time come to me, they typically have a lot of questions about their credit history and how it affects them.  You may be aware of credit scores, but do you know yours? Do you know what determines your credit score or what you can do to manage it?

What is a Credit Score?

Your credit score is the one of the most important factors in determining if a bank will grant credit (loan you money) and what interest rate you will receive. If you have a higher score, you are considered a better credit risk. 

There are three major credit bureaus collecting your financial data.  They are:

 

  • Equifax® www.equifax.com
  • Experian® www.experian.com
  • TransUnion® www.transunion.com

Credit bureaus consider what types of credit you use. Types of credit include:

  • Revolving credit – those that let you charge up to a maximum limit
  • Charge Cards – Accounts where you have to pay the total balance each month
  • Service Credit – where some kind of service is provided and you agree to pay for them each month such as power, cell phones, or gym memberships
  • Installment Credit - you agree to repay the money and interest in regular installments of a fixed amount over a set period of time such as car payments and mortgages. 

Credit bureaus look at how long your accounts have been open, and whether you pay your bills on time.  Your credit report includes other factors such judgements, tax liens, or bankruptcy. This all goes into figuring how risky it will be to lend you money. 

FICO® Scoring

FICO (Fair Isaac Corporation) is the largest and best known of several companies that provide software for calculating a person's credit score and the one most lenders use. You have 3 FICO scores – one for each of the three major credit bureaus above. Your FICO scores change over time as the information from the credit bureaus is updated, so it’s a good idea to check them periodically. 

Credit scores range from 300 - 850.  All information contained in credit reports is compared to find patterns and the result is the FICO score.  

Excellent Credit 750+
Good Credit 700-749
Fair Credit 650-699
Poor Credit 600-649
Bad Credit Below 600

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What criteria will determine your credit score?

Every aspect of your credit history does not carry the same weight in forming your credit score. Paying your bills promptly is #1.

Payment history  - Do you pay your bills on time?  This factor accounts for 35% of your score. 

Credit utilization - How much of your available credit are you using? Less debt means a higher credit score! This factor accounts for 30% of your score.

Length of credit history - How long have you had your credit accounts? A longer history of good credit behavior is better.  This factor accounts for 15% of upir score.

Mix of accounts – Building a history of how you manage different types of credit like car loans, credit cards, rent payments, and utilities can help.  This factor accounts for 10% of your score.

New credit inquiries - Opening several accounts in a short amount of time is not advisable and can lower your credit score. This factor accounts for 10% of your score.

Ways to improve your credit score:

If your credit score is not so great, don’t despair.  Your credit cannot be repaired overnight, but you can improve it over time.

Stay on top of payments.  Do not become past due or delinquent.

Pay down credit card balances below 30% of the maximum limit. If you can, get into the habit of paying off your balance each month.

Leave old debts with long history on your report.  Closing old credit is not always a wise decision.

Time opening new credit carefully if you are buying a home.  Avoid opening a new account at this time.

Monitor your credit and report errors.    Credit reporting agencies are required to investigate any disputes or inaccuracies.  Keep copies of the information sent to the reporting agencies so you have copies for your records.

How do I find my credit score?

To receive your free annual report, you can do the following:

  Equifax Experian TransUnion
Email www.annualcreditreport.com
Mail PO Box 740241, Atlanta, GA 30374 PO Box 4500, Allen, TX 75013 PO Box 2000, Chester, PA 19016
Call 1-866-349-5191 1-800-509-8495 1-800-916-8800

About the Author:

Dawn Henss is Vice President and Branch Manager at West Bank's 125 Grand Avenue Branch in West Des Moines, Iowa. She has spent most of her career in banking, much of it at West Bank. Dawn has an associate of arts degree from Des Moines Area Community College and has studied with the American Institute of Banking.

Active in her community, Dawn enjoys Westside Des Moines Chamber functions and volunteering for Historic Valley Junction Events.  She has served on the board for Dress For Success. She also participates in Plainview Community Club, a charitable neighborhood association that raises funds for non-profit organizations.

Note: West Bank does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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Posted on: 2019-05-02 // Categories: Personal Finances

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