Spring has arrived and true to form, college basketball fans everywhere have caught the fever of March Madness, the annual NCAA basketball tournament where 64 teams get a shot at the national title. Every year college basketball fans fill out their brackets, strategizing on which teams will make it to the Final Four, and hoping to see their team take the championship. And every year there's an upset where a team comes out of nowhere to make a deep run into the tournament, cutting a favored team out of the championship and busting many a fan's brackets. This year Duke and Missouri were the culprits for obliterating my brackets. It's the way life goes, and can happen with anything you do, so in the spirit of March Madness, I thought I would share a few lesser known tips for keeping your credit score from looking like this year's busted brackets.
1. When paying your credit card balance in full, anticipate a delay of 30-60 days before your credit reports and credit score reflect a zero balance. A common assumption many consumers make is expecting an immediate increase in their credit score when they pay their credit card balance in full, which is not the case, unfortunately. If the credit reporting industry were as technologically advanced as our credit card and banking industries, this wouldn't be a problem. However, when it comes to the credit industry, credit report updates do not happen in real-time. Instead, creditors and credit card issuers report updates to the bureaus at scheduled intervals, typically once a month, around the time your statement drops. This means the balance on your credit report will usually show the balance reported in your most recent statement -- not the zero balance you just paid in full.
If you're looking for a quick boost in your credit score, it'll take a little longer than you might think to see the results. Which is why it's a good idea to begin strategically preparing 60-90 days before applying for a loan on a large purchase, like a car or home, for example. This will give you the time needed to reflect that zero credit card balance and earn the boost in your score that you are looking for.
2. Never assume that your credit file contains the same information at all three credit bureaus. Many consumers are surprised to find that their credit report information varies from bureau to bureau, but it's actually quite common. This is because the three major credit bureaus -- Equifax, Experian and TransUnion -- operate as independent entities and do not share credit report data with each other. Factor in the various reporting policies of different lenders and credit grantors, and it's quite easy to see the variance in credit report information across the three agencies. To illustrate, when you apply for a loan or credit card, the credit grantor will typically only pull your credit file from one of the three bureaus, depending on their company policies. This means only one of your credit files may show an inquiry, while the other two may have no record of an application for credit. Then, consider that some credit grantors may only report to one or two of the bureaus, not all three.
To insure the information in your credit report is accurate and up-to-date at all three bureaus, it's a good idea to take advantage of your federally mandated right to your free credit report from each of the three major credit reporting agencies, once every 12 months from www.annualcreditreport.com. Considering the fact that your credit scores are only as accurate as the information in your credit reports, you can see the importance of insuring your information is accurate.
3. Paying a collection or past due debt may not improve your credit score immediately, but it will keep you from further credit damaging problems. If you've had some credit issues in the past and are looking to improve your score by paying off a negative account or collection item, be aware that paying the negative account won't immediately give your score a boost. From a credit scoring perspective, the fact that the account went to delinquent status is what matters. So, why pay the collection in the first place? If you don't, the damage to your credit could end up much worse. The collection could be sold to another collection agency, causing one collection account to spiral into several on your credit report or, the collection agency could decide to file a lawsuit to collect and you may end up with a judgment against you. It's best to pay any past due or collection items, and get back on track. If you get current, and stay current -- and keep your balances low, it'll take some time, but the new positive information will go a long way to helping you improve your credit for the future.
4. Plan ahead and time your rate shopping. If you've taken all the right steps, checked your credit reports and scores, and are ready to make a large purchase, like a home, car, or even if you are looking to qualify for a student loan -- you have one nice advantage when it comes to choosing a loan: You don't have to settle for the first approval and can shop around to find the best deal. Unlike credit cards and personal loans, when it comes to taking out large loans for a home, car or student loan, there is logic in place with credit scoring models that allows you to shop for the best deal. This means you can apply to a number of lenders, and as long as you time your applications and they occur within a relatively short period of time -- typically 30 days, depending on the scoring model -- the inquiries won't hurt your scores. By utilizing this credit scoring logic smart consumers actually have the ability to beat the banks at their own game -- make the most of it.
5. When it comes to debt, it's the credit card debt that you need to watch. Your proportion of balances to your credit limits, or your revolving utilization, is the single most important factor after payment history when it comes to your credit score. Work to keep your revolving utilization at a manageable level -- the lower the better -- to keep your credit scores on track. Not only will your credit score reward you for the effort, you'll avoid the financial problems that come with overwhelming credit card debt.
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