From television commercials to radio ads you have probably heard about credit ratings (also called credit scores) for a long time. Credit ratings are complicated and at times confusing for most consumers. Make sure you are informed about credit ratings and how they affect you; it is important to separate the fact from fiction.
Does Applying for Credit Lower Your Rating?
Yes, it does---but only slightly. Each time you apply for credit your credit rating will lose approximately one point. Excessive requests for credit (known as inquiries) can present a bad picture to a lender when you apply for an auto loan or home mortgage. Excessive inquiries make you look "credit-hungry" to a potential lender and may adversely affect the interest rate or your chance of approval. It is important to note that the occasional inquiry is okay; just try to keep them to a minimum.
How Can I Raise My Credit Rating?
Credit cannot be turned around overnight; it takes months, even years to establish a good credit rating. It is important to always pay your bills on time, keep balances as low as possible and communicate with creditors you have charged-off in the past, to work out payment plans---it won't remove the negative item from your credit report, but will show that you are making payments; this can raise your credit rating.
What is Considered a Good Credit Rating?
There are three different credit reporting agencies: Equifax, Experian and Transunion. Each have different criteria for what is considered a "good" credit score, but generally a credit rating of around 700 is considered good, and 800 is considered excellent.
If I Have No Credit, How Can I Establish a Good Credit Rating?
Without an established history, acquiring credit can be difficult. Applying for a secured credit card is usually a good idea for someone with no credit. Secured credit cards take a deposit from you to hold in case you default; the amount of the deposit is usually your maximum credit limit. You are essentially borrowing against your own money, but timely payments will be reported to the credit agencies and help you get started establishing a good credit rating.
Why Does My Credit Rating Change from Month to Month?
Creditors send their financial data to all three agencies once per month. The agency updates the information in your credit file and this information may adversely or favorably affect your credit rating. Changes such as: balances, age of accounts, credit limits and inquiries can affect your credit rating.
How Can I Get My Credit Rating for Free?
The answer to this question is not on any television commercial, no matter how amusing or cute they are. Sites that advertise a "free credit report" are usually selling you a service coupled with it. Federal law requires that every consumer be awarded a free copy of their credit report each year. The offer is year-round, but the month you can get it depends on the state you live in. See the resource below for the calendar and instructions.
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