UNDERSTANDING CREDIT SCORES AND HOW THEY WORK

When people ask me do we offer credit repair, I am often surprised that they ask. I am often like, "Are they serious?" if the name of the business, doesn't get that across, I do not know what to say. In today's post, I want to capture what really goes on with the elusive credit scores and how they work when applying for credit. This is directly related to why this company goes out of its way to educate people on all levels about how to deal with the credit problems. Credit scores are generated essentially through a myriad of systems called "algorithms". That's a fancy term that sets a "standard" in which any of the three main scores are calculated based on any given lender's capacity or interest to evaluate someones ability to repay a debt. The scale most often associated with a certain score and value looks like this:

People truly feel like they are climbing some elusive ladder of privilege or status to get to a 700 credit score. In some cases it may very well seem that way when you look at the interest rates someone can pay for the use of a credit card or installment payment terms to buy products and services. So how do they REALLY WORK? Well, first it's important to understand that not every scoring system uses the same algorithm. What that means is, Bank of America may have a totally different way they review your credit status than say, Citibank. Both banks indeed offer credit cards, auto loans, and even lines of credit. What each bank may feel is top tier credit scores for low interest rate lending may in fact vary. 

Let's look closer: You checked your credit score online first because you have been following my advice and know that you should not apply anywhere without checking your scores first. So you review your credit scores by setting up an online credit monitoring service and discover your credit scores are in the high 600's.  Specifically, you have an Experian score of 678, a Equifax score of 650 and Transunion reports a score of 693. Now, you are armed with some way of having an intelligent conversation about your status. So next you apply with Bank of America in person for a credit card you feel you should have no problem being approved for. You sit while your credit is bring reviewed by the bank representative and they share you are not approved for that particular card. You wonder why? That representative may offer another option since you are in the bank. It has very different terms and the interest rate is not what you had in mind, but you take it because you do not want to be declined completely. What just happened? You fell in what is called a "Tier system" and review.

Your not a bad credit client, but the score was not high enough for the card you actually wanted.

Every lender has some kind of Tier system and often those really hot offers with zero percent interest rates for 6 months and 5% rebates and vacation points, etc; are designed to capture the credit scores of people who are considered "Top and Elite'. How can you become the Top tier and Elite of approved offers and opportunities, well it's not simple and not easy either; but it is doable and actionable if you are not hell bent of running up your credit card balances every month.

Here are 5 WAYS TO GET TO TOP TIER STATUS:

1) Always pay your credit cards, loans before the date payment is due. 

2) Pay more than the minimum! If you are due to pay $15, pay $30.

3) Never, never, ever spend more than the approved credit line!

4) You do not have to spend on every card you own. Learn to manage your cash!

5) Do not apply for credit cards just because you get an offer. Value your credit information and be careful with the terms and conditions of your credit cards and loans. Spend time developing a relationship with those lenders. 

Using the information shared here, credit scores have a new significance aside from just getting a high score. It takes time, structure and clarity in how to use credit in which your scores will increase and those prime offers will be offered to you! I hope you've enjoyed this post and please let us know how we can help you!