Managing Your Credit Score

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Paying off bad debt and managing your credit are important aspects of your Opening Moves in the game to win your financial future. I find the topic on credit and how to manage it critical, so consider checking your credit score a couple times per year. Your credit score can affect you in many ways. It can set the price you pay to borrow money. It can even affect employment if a prospective employer checks your credit rating.

It’s become even more important because of the major trend of increased student loans. There are more than $1T, with a T, in student loans outstanding and that’s affecting Millennials in many ways. They’re having to pay off large student loans before getting into buying their own homes and all of the early family/home development. They’re having to put off many purchases to deal with the deal owed.

Over the years, I’ve personally had a few issues to manage and dispute. Some were mistakes by the credit reporting service and should not have been on my credit report. However some were self-inflicted. I can say that periodically checking in on my credit score and disputing negative marks has really helped me over the years.

Credit Score

When we talk about credit score, we usually mean FICO or VantageScore. FICO, Fair Isaac Corporation uses information from your credit reports to produce a number between 100 and 850, where 100 is your lowest score and 850 is the highest. VantageScore gives you both a three digit rating and a letter grade from A to F. FICO is accepted by lenders more than VintageScore. The credit bureaus that calculate the scores and manage credit reports are EquifaxExperian, and Transunion. These three main credit bureaus have access to information on how much money you have borrowed in the past, and how reliable you were in paying it back. Basically, they help businesses and people to manage credit risk, prevent fraud, check credit reports and credit score, as well as protect individuals against identity theft.

Credit Reporting Services

There are many services you can use. Some are free and some require a fee. CreditKarma is one of the free options. It shows your credit scores from Transunion and Equifax. Both are VantageScores, but they are based on different credit reports, so they may not match exactly.

I like using CreditKarma because for three reasons - it is free, it is easy to use and it has a powerful dispute resolution system built within its platform. Another website is Credit Sesame. It shows your credit scores generated only from Experian, providing you a VantageScore with a detailed breakdown of the factors affecting your credit score. If you happen to be faced with identity theft, Credit Sesame is a useful resource on understanding identity theft and how to deal with it. Credit.com is another free platform that provides information based on your Experian credit report. Also, you can check out WalletHub, which is the first and only site that offers free credit scores and reports that are updated daily, compared to others that are updated on a weekly basis. It also has the largest database of information and reviews on financial companies, professionals, and products, including 1,000+ credit cards.

These free websites provide you a VantageScore and not the FICO score that lenders generally prefer to use when reviewing your credit application. If you would like to get a FICO score for free you can turn to your bank or credit card for this service. Most of the banks like Wells Fargo, Bank of America or CitiBank and major credit card issuers like American Express, Discover, and Chase offer free monthly FICO scores to their customers.

Disputing Derogatory Remarks

My understanding of the law is, that if a dispute is made about a negative mark on your credit score, the creditor reporting the derogatory credit mark must have a full paper trail to be able to defend the derogatory mark. In reality though, what happens is many companies sell/charge off their bad debt to other companies who buy distressed debt. They usually buy a large collection of this debt and it’s managed in a spreadsheet. Typically, none of the supporting documentation goes to the company buying the distressed debt. They are buying this debt for pennies on the dollar hoping to recover about 10% of the outstanding balances. For these companies, it is about speed and volume.

That can be good for consumers. If you had a derogatory mark on your credit report, but some time has passed and the original creditor has sold off the debt to another company, you have a good chance of disputing the derogatory mark on your credit report and winning. That means you can really improve your score if the credit agency is unable to back up and support their claim. Be aggressive with disputing any derogatory marks on your credit report where you think they could be inaccurate.

Think about joining one of the reporting agencies or getting a free report and checking out what might be impacting your credit score. Check it once or twice per year. Chance are, there are steps you can take to improve your credit report. Winning a dispute regarding derogatory marks on your credit report will obviously improve your overall score and improve your borrowing outlook. Credit will be an ever-important aspect in the future, so consitently managing your credit report will only improve your overall financial capacity.