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Telco Tips: Credit Scores – How to Get Started

According to Wikipedia, “A credit score is a number based on a statistical analysis of a person’s credit file that, in theory, represents the credit worthiness of that person, which is the likelihood that people will pay their bills. A credit score is primarily based on credit report information, typically from one of the three credit bureaus: Experian, TransUnion, and Equifax, and does not consider income and employment history when calculating credit scores.

Credit scores were developed by FICO. There are various methods of calculating credit scores which in 2018 numbered 29 different versions. Versions vary by industry, specifically meaning some are enhanced by FICO-automotive, FICO-credit card, etc. General purpose FICO scores range from 300 to 850. CreditKarma author Lindsay VanSomeren offered the following as ratings you may use in determining a good score:

What is a good credit score?
Credit Score      *Rating           % of People
300-579                   Very Poor           16%
580-669                     Fair                    17%
670-739                    Good                   21%
740-799                 Very Good            25%
800-850                Exceptional          21%

Why should I pay attention to my credit score?
Not only should you know what your credit score is, but you should be constantly working to improve it. Having a higher credit score could give you better terms and interest rates on loans and in the end, help save you money. On the other hand, the lower your credit score, the more likely you will be held back from getting approved for a loan.

Factors that affect your credit score;
• Payment history (most influential) and length
of credit history (moderately influential)
• Type, number, and age of accounts
• Total debt (highly influential)
• Public records; such as bankruptcy
• How many new accounts recently opened
• Number of inquiries (less influential)

How can I improve my credit score?
No one wants to have bad credit, but your credit history is your track record of how well you use and repay credit. On any credit cards you own, keep your balance less than 50 percent of your credit limit.

Your credit score may take a hit if you are over the 50 percent level. Be careful how many times you are applying for credit. Every time there is an inquiry on your credit history, when applying for a loan or credit card, your credit score may be negatively impacted. Doing self-checks on your credit score through sites like creditkarma.com will not impact your score.

How do I establish credit?
A great way to start credit is to apply for a money-secured loan or credit card. Put your paycheck into a credit union savings account and use that account as collateral for the loan or credit card. You can then do a cash advance or use the loan proceeds to replace the paycheck funds you pledge on your loan. (Note: You will need to leave the funds in your savings while the credit card or loan is still active. When the loan is paid off, or you’ve maintained your account over a sufficient amount of time, your loan or credit card may be analyzed and the money in your savings may be released by the credit union.)

Options Other Than PayDay Lenders!
Some people think that their low credit score means their only option is alternative types of loans, such as payday or car title loans. These short-term loans may not require a credit check and appear appealing if you don’t think you will qualify for a traditional loan.

PayDay loans can be exceedingly expensive and you may want to review your strategy. Creditkarma.com shows that in 2014, according to the
Consumer Financial Protection Bureau, “More than 80% of payday loans are rolled over or followed by another loan within 14 days, keeping people in debt longer than they had planned.” A typical two-week payday loan with a $45 fee on a $300 loan equates to an Annual Percentage Rate (APR) of almost 400 percent!

Compare that against what your credit union offers! Chances are that you may qualify for a lower rate, but even if you use the maximum state usury law rate of 18%, it makes sense to use your credit union. That same 14-day loan interest on $300 will cost you approximately $2.07 at your credit union!

Let Telco Triad help get you back on track today. Call us at 712-252-4368 and ask to talk to one of our professional lenders.