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Every time you get a new credit card,
pay down a large balance, reach your credit limit, or
miss a payment, your credit score is affected. There are
many small things that you probably do quite often that
also have an affect on your credit score. Here are a few
things to keep in mind in order to keep your credit file
in good standing: |
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Your credit score
can be significantly affected by accounts that have
been sent to collections. Even though collection
accounts can hurt your credit score, don’t
pay off or have older collection accounts corrected.
Why should you do this? Scoring models allow scores
to rise or “improve” as collection accounts
get older. Only pay off collection accounts that
are less than a year old since they can have a significant
impact on your credit score. |
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Opening and closing credit
lines do not significantly affect your credit score.
Your credit score is affected by the credit limit
you have and how much of it you use. Taking out
a credit card line for $5,000 for example and immediately
charging $4,900 on it can lower your score. Ideally,
you want to maintain a balance of no more than 25
to 30 percent of your available credit. The less
you have charged, the better your score. |
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Your credit file is not
affected by the amount of cash you have in your
savings or checking accounts. If you have a credit-line
set up through your bank to protect you from overdraft
charges on your checking account, this is most likely
reported to the credit bureaus and can affect your
credit score. |
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If your credit score differs
slightly from one loan application to another, don’t
worry about it. There is more than one “credit
score” used by lenders to assess your credit,
which can make it very confusing for a potential
home buyer. Different lenders use different scores,
and it usually depends on the industry the lender
operates in. For example, an auto dealer may use
a different score model than a mortgage lender.
Mortgage lenders, auto lenders and even insurance
companies all use different scoring models with
your same credit data. Only be concerned if there
is a drastic difference in the scores. |
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Have you ever bought a
piece of furniture or a TV with credit from a department
store? While your monthly statement will come from
the store, these lines of credit are usually taken
through a finance company, not the store itself.
Finance company credit lines affect your credit
score more than do other types of credit. The reason
is that the credit line is usually opened for the
amount of the purchase at the store, which is the
amount the credit line is for, effectively using
up the available credit. As mentioned earlier, the
lower the amount of available credit used, the better
you credit score will look. Since the use of the
account in this example is at or near 100%, these
types of credit lines can lower your score. |
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A credit reporting agency
stores information from credit grantors and public
records, including bankruptcies, judgments and liens.
Potentially negative information, such as missed
payments and most public record items remain on
a personal credit report for 7 years, with the exception
of Chapters 7, 11 and 12 bankruptcies, which remain
for 10 years, and unpaid tax liens, which remain
for 15 years. A paid tax lien will remain for 7
years. Positive information may remain on a report
indefinitely. Paid closed accounts generally display
for 10 years. Requests for your credit history remain
on your personal credit report for 2 years. |
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Never use different names
to request your credit report. For example, if your
full name is Michael J. Smith, don’t fill
out one credit application as Mike Smith and another
one as M. John Smith. Always use the same, full
legal name. This means filling out loan, credit
card applications, etc. in a consistent way. Names
are used as a way to match you with your credit
file. Inconsistencies in the way you use your name
can lead to items not being listed on your credit
report. This can negatively affect your credit score
if the items left off are accounts with low credit
usage that are in good standing. |
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