There are two reporting credit bureaus that the lenders use: Equafax and Transunion. These are reporting systems only and I refer to the as a machine. You can’t argue, plead your case, or dispute with the credit bureau companies as their sole duty is to report your trade lines and grade you accordingly. If you have an issue with something on your credit you need to get the **trade line to report directly in order to update or change you credit bureau.
This is the driving force behind your credit. Beacon scores are derived from a number of things and are one of the first things looked at by the lenders when applying for anything from Mortgages, to loans, and credit cards.
Beacons score based on a grading system:
- 640 to 679 is C- to C+
- 680 to 699 is B- to B+
- 700 to 720 is and A
- Anything over 720 is A++
Credit inquiries are not created equal:
- When a mortgage broker inquires it’s a lighter hit based on the fact that we only do mortgages which is the most secured lending out there. **Might be 2 to 4 points
- When a bank or credit Union Inquires it’s a bit more of a hit as they have unsecured loans and Lines of credit, keeping in mind the credit bureau doesn’t know what you are applying for or if you get what your applying for or not. **Might be 5 to 7 points
- When a credit card company inquires they are a fairly heavy hit as they are a high risk company. **Might be 20 plus points
- When inquiring with a Citi financial or HSBC finance type company they are a very heavy hit on your credit as they are very high risk companies. **Might be 30 plus points
As far as inquiries are concerned the point is not to be afraid of them but to understand them and how they affect you and your over all beacon score. That way when you are inquiring you can make educated decisions based on what you are trying to achieve.
**The points I’m referring to are approximate and based on what I have seen over the years as a lender and broker. The true calculations are an undisclosed and there is a number of extenuating circumstances to the actual affect inquiries might affect your points.
This comes in to play more so with revolving credit like Credit Cards and Lines of Credit. These are also referred to as **trade lines. Most lenders want to see you to have at least 2 trade lines fro at least 1 year. There are of course exceptions based on the over all strength of a deal.
Utilization is based on what you have for a limit and what you have for a balance.
Utilization based on percentage:
- Over the limit is almost as bad as a late pay. The creditors my not care but the credit bureau does.
- 90% to 100% balance on limit will erode your beacon score
- 75% to 80% balance to limit will be a stand still but might affect either way slightly
- Under 50% will increase your beacon fairly steadily
- Under 25% is ideal and will increase your beacon quite rapidly
Like many things the bad out ways the good so if you have one account running high on the balance or going over the balance it will out weight the accounts running ideally.
If you are building credit, know that The credit bureaus only see a once a month snap shot of your trade lines so make sure you keep an ideal balance and pay it off or at least make the minimum payment 4 days before the payment is due. This way you keep a balance on your trade line long enough for the credit bureaus to see it.
We all know these affect your payments but did you know your cell phone is a part of this picture and can affect you as much as a late payment on a credit card or loan? Late payments can diminish your beacon score drastically so try to avoid them at all costs! Ideally you should have a list of payments that you review once a month to make sure you are on top of things.
Collections are what happens when a trade line is so delinquent the company sells the bill to a collection company, or reports the trade line as a collection through their own company. This needs to be dealt with if you are applying for a mortgage through an A lender. The only way you can get around it is if you are disputing it and you need the paper work to prove you are disputing it, otherwise I always say, Even if you are mad or upset about a bill you are not hurting them by not paying it you are hurting yourself. Not only that but if you are trying to build credit having a collection on your bureau is like a boat’s anchor dragging through sand so it slows your progress drastically.
When handling a collection make sure you figure out what you need to pay with the collector and negotiate them reporting it to the credit bureaus and also get them to send you confirmation this has been done as well as a copy of what they sent the credit bureau for your records. If you don’t insist on this a lot of collectors will take your money but leave the issue un resolved and again the anchor remains…
** Trade lines are accounts that report to your credit bureau such as, Mortgages, Loans, Lines of credit, and cell phones.