Q) What does my credit report have to do with my credit score?
Answer: Your credit report is a detailed history of your credit accounts including payment history, credit limit, highest balance ever charged, and age of the account.
Your credit score is a numeric representation of your credit report. Think of your credit report like the report card grade for all the work you did in class a particular year.
Your credit score goes up and down depending on how the information in your credit report changes.
How a Balance Transfer Could Affect Your Credit Score
Credit card balance transfers are attractive when one credit card offers better terms than your current credit card. For example, you might transfer credit card balances when you have a credit card with a lower interest rate. Making a balance transfer might help you save money, but it could hurt your credit score.
How Your Credit Score is Calculated
Your credit score is calculated based on five basic criteria: payment history, level of debt, age of credit, mix of credit, and recent credit applications. Credit card balance transfers can affect your credit score in these areas: level of debt, age of credit, and recent credit applications..
Balance Transfer and Credit Utilization
Your credit score looks at your credit card balances in relation to their respective credit limits. This ratio between credit card balances and credit limits is known as your credit utilization and counts 30% of your credit score. The higher your credit utilization, the lower your credit score will be. If you transfer a balance to a credit card with a lower credit limit than the previous card, your credit utilization will go up and you could lose credit score points. Fortunately, you can regain lost credit score points by paying down your balance quickly. Ideally, your credit card balances should be below 30% of the credit limit..
New Balance Transfer Credit Cards Lower Credit Age
Age of credit measures how long you've been using credit and counts 15% of your credit score. This part of the credit scoring calculation averages the length of your credit accounts. If you remember grade school math, you know that adding new accounts will lower your average credit age. Transferring your credit card balance to an account that's already open won't damage your credit score in terms of credit age. However, if you open a new credit card, your credit age will be lowered.
Applications for Balance Transfer Credit Cards Hurt
You probably know that each credit inquiry makes a small dent in your credit score. Since recent credit applications are 10% of your credit score, applying for a balance transfer credit card could cause your credit score to drop. FICO, developers of the widely-used credit score, says that inquiries typically only hurt a credit score five points or less depending on the other information in your credit report..
Balance Transfers Involve More Than Credit Scores
When you're considering a balance transfer, it's important to consider more than the effect on your credit score. You should also think about the cost of the balance transfer and the cost of not doing a balance transfer.
Why You Have Different Credit Scores
If you've ever purchased a three-in-one credit score, you might have noticed that your credit scores are different among the three credit bureaus. As if understanding your credit score wasn't difficult enough, having different credit scores makes it even tougher to understand. Here's why that happens.
Credit bureaus use different credit scoring models
Each of the credit bureaus uses a different model for calculating your credit score.
According to Fool.com, Equifax is the only credit bureau that sells the FICO score to consumers. Equifax uses the term BEACON to refer to the credit score that’s sold to other businesses. The score ranges from 350-850.
Both Experian and TransUnion developed their own credit score calculations based on the FICO scoring model.
The Experian credit score, known as Experian/Fair Isaac Risk Model or PLUS, ranges from 330-830.
The TransUnion score, also known as EMPIRICA, ranges from 300-850.
Credit bureaus have different credit report data
Credit bureaus collect data independently of each other – and they typically don't share it. Not only that, your creditors and lenders might report data only to one or two of the credit bureaus. So, your Equifax, Experian, and TransUnion credit reports might all look different from each other.
Each credit bureau calculates your credit score with the data in its credit file. For example, Experian calculates your credit score with the data in your Experian credit report. So, if you have a collection account that appears on your TransUnion credit report, but not on your Experian credit report, then your TransUnion credit score might be lower.
Which credit score is your lender using?
Lenders usually have established relationships with one or more of the credit bureaus. You can ask your lender from which credit bureau it purchases credit scores (they may or may not tell you), but you typically can't request that your lender use a certain credit bureau to retrieve your score.
Most lenders use the FICO score developed by FICO, the company formerly known as Fair Isaac. You can purchase your FICO score based on Equifax and TransUnion credit reports from myFICO.com. Unfortunately, consumers are no longer able to purchase Experian-based FICO scores. Lenders may still use the Experian-FICO scores.
FICO, FAKO, Credit - What Are All These Credit Scores?
The lingo used to talk about credit scores can be confusing. On any given personal finance website or in any given book, you might see the term credit score. Or you might see FICO score. Still, there's another credit score term that's been thrown around - FAKO score. What are all these different scores and what do they mean? Which one is the "right" one?
Credit Score is Generic
Let's start at the beginning. Think of "credit score" as a generic term that used to refer to the numeric value given to your credit history. Your credit score is calculated using information contained in your credit report.
You may have also heard about the Vantage Score, a newer score developed by the three major credit bureaus, that also considers non-traditional forms of debt like apartment leases and utility payments.
FICO is a Brand
The FICO score is a branded credit score, developed and administered by a company called Fair Isaac.
For the analogical-minded - credit score is to FICO as bandage is to Band-Aid.
What about FAKO?
FAKO score is used to refer to any credit score that's not a FICO score. If you purchased your credit score from anywhere but myfico.com, then it's a FAKO score.
What's the Difference?
As far as we know, all the credit scores are generally calculated the same. Since we can't see each company's exact formula, it's hard to pinpoint the specific differences.
Creditors and lenders use the credit score from the company they have a business relationship with. It could be a credit bureau's credit score, the FICO score, or the lender's own credit score. The only way to find out is to have your lender tell you (some won't).
What Your Credit Score Is Made Of
For many homeowner’s foreclosure is a reality, but it’s not the end of the world, or the end of your credit. A foreclosure will remain on your credit report for seven years and will impact your credit the most in the first few years. As the foreclosure gets older and you add more positive history to your credit report, your credit will improve.
There's no magic formula to repairing your credit after a foreclosure. The more you make good decisions about using your credit, the better your credit will be.
Evaluate the cause of the foreclosure.
Solving a problem is easier when you know the cause of the problem. You'll have an easier time repairing your credit post-foreclosure if you understand what caused you to foreclose. What could you have done something differently? Perhaps chosen a different mortgage? Managed your money better? Understanding why the foreclosure happened can help you prevent it from happening again.
Adjust your spending habits.
If you haven’t been budgeting your income, start now. Having a budget isn’t the chore many people think it is. When done right, a budget helps relieve financial stress because it helps you make decisions about spending your money. If you had a budget before the foreclsure, but didn’t stick to it, you can start over again. Don’t forget to add your “actual spending” to your budget at the end of the month. This way you can see where you’ve overspent and make the necessary spending adjustments.
Continue paying all your other bills on time.
Make sure to pay credit accounts that regularly are reported to the bureaus. This positive payment history will help “pad” your credit score, keeping a foreclosure from completely devastating your credit. Not only that, a creditor or lender who manually reviews your credit report will see that the mortgage was the only thing hurting your credit and could be more lenient with your application. Don't neglect other expenses, because they could end up on your credit report as collection accounts if you leave them unpaid.
Work on paying off debt.
Having a high debt load will hurt your credit score, even if you’re paying your bills on time. Work on reducing your credit card balances to 30% of the credit limit or less. That means a $300 balance on a credit card with a limit of $3,000. Reducing your debt level will also decrease your debt-to-income ratio. If you get a mortgage in the future, a lower debt load will help you better handle your payments.
Get help if you need it.
If you're having trouble making a budget and putting together a debt management plan, you can get professional help. A consumer credit counselor can work with you to figure out how to make the most of your income. They will also negotiate lower interest rates and monthly payments with your creditors so you can work on getting out of debt. Choose a credit counselor wisely. Beware of unscrupulous debt settlement companies who can do further damage to your credit.
Get and use a credit card.
If you don't already have a credit card, apply for one, but only after you’ve evaluated and adjusted your spending habits. Resist the urge to get a credit card just to buy things you can’t afford. Instead, use a credit card to make small purchases then pay off the balance in full every month. This shows that you can properly manage credit – borrowing only what you can afford and paying it back in a timely manner.
7 Ways to Stop a Credit Repair Scam
You have bad credit and you want to make it better quickly and with a low amount of effort. You’re like thousands of other Americans who also have bad credit. Being desperate for better credit can leave you vulnerable to credit repair scams. Don’t let yourself be taken advantage of.
Credit repair organizations are governed by a law known as the Credit Repair Organizations Act. This federal law requires any credit repair service to fulfill certain obligations to you. You should avoid any credit repair service that doesn’t follow these rules.
Seven Signs of a Scam
You could be getting scammed if any of the following are true:
You aren’t given a copy of the “Consumer Credit File Rights Under State and Federal Law” letting you know your rights to obtain a credit report and dispute inaccurate credit report information.
You aren’t given a copy of the contract to view before you’re asked to sign it.
The contract doesn’t contain the following information:
The amount you are being charged
Details about the services being performed on your behalf
The date by which the services will be performed (or the time period required to perform the services)
The name and business address of the organization
A statement letting you know you can cancel the contract within 3 days
You’re asked for payment before the services have been performed
The company promises to remove accurately reported information from your credit report
The company promises to create, or asks you to create, a “new” identity with a new social security number or federal employer identification number (EIN)
You’re asked to sign a form waiving your rights under the CROA
Alternative to Buying Credit Repair
If you’re considering a credit repair service, keep in mind there is legally nothing a credit repair company can do to improve your credit that you can’t do yourself. Many of these companies promise to remove harmful negative information from your report. If the information’s wrong, you have the right to dispute it off your report. You only need to write the credit bureau providing the report. However, when the information is correct, you don’t have the right to dispute it, nor does a credit repair company.
You might not be prosecuted for disputing correct information on your credit report, but you can be prosecuted for fraud if you lie on a credit application. For example, it’s fraud to answer “no” that you have never filed bankruptcy when you actually have. Just because you, or the credit repair organization you hired, disputed the bankruptcy from your credit report doesn’t mean the bankruptcy never existed.
What to Do If You've Been Scammed
Don’t let supposed credit repair organizations get away with scams. Take action if you feel your rights have been violated. Start by reporting the organization to your state attorney general. You can visit the to find an attorney general in your state. Send a complaint to the Federal Trade Commission and theBetter Business Bureau.
Before you use a company’s credit repair services, do some research with the BBB, FTC, and your state attorney general to find out if there are any existing complaints. Avoid companies that consumers have already complained about.