The importance of maintaining a healthy credit score was the subject of the recent Women”™s Business Development Council (WBDC) webinar “Financial Foundations: Credit Score Basics.”
Samantha Cross, the WBDC business adviser who hosted the webinar, said the one question she is most frequently asked as part of her job involves how to improve one”™s credit score. She noted this was not surprising, considering the value that a credit score carries in both a professional and a personal environment.
“A credit score matters most when you’re looking to borrow money,” she explained. “When you’re looking to get money from someone for something ”“ perhaps a home, a business, a car ”“ getting your credit score to be good is something you should be doing long before you need money. Because anything you do to improve your credit score takes time.”
Cross defined the credit score as “simply just a numerical representation of your past financial behaviors.” She noted that if someone paid their bills on time and did not carry an excess of debt, then their “credit score should be pretty fine.” But if a person missed a couple of payments or was in a situation where payments were late, the credit score would need improvement.
However, she also emphasized that a credit score should not be the financial equivalent of a scarlet letter.
“A good credit score does not make you a good person, a bad credit score does not make you a bad person,” she said. “It’s just a factual numerical representation of what you’ve done in the past. And the good news is that if you change your behaviors, you can improve your credit score ”“ and if you maintain good behaviors, you can improve it as well. It’s a fluid number and you are not stuck where you are today.”
Cross pointed out that credit scores range from 300 to 850, although she laughed that she never saw anyone with scores at either extreme. She explained that scores in the 300 to 500 range were considered poor and borrowers would find it “difficult to get along”, while the 500 to 600 range was “not great, but you’ll probably get something ”“ maybe not all you want.”
The 600 to 750 range was defined as “a solid B student” by Ross, while anything over 750 was considered excellent credit. Ross said higher credit scores will prove beneficial when seeking loans.
“It’s more likely that you will get the loan that you’re looking for,” she continued, adding that interest rates will also be adjusted based on credit scoring.
“The better your credit score when you get that loan, presumably the less risky that you are and, therefore, the lower the amount of interest rate that you will pay for that loan. Good credit scores give us good outcomes when it comes to loans.”
Ross observed that credit scoring can be determined by several companies, most notably FICO and Credit Karma, and she insisted that anyone seeking to keep an eye on their scores can “use any of the credit scores that you can get your hands on, because they’re all going to be similar.”
Ross cautioned that the upcoming holiday season could create an unpleasant surprise related to credit scoring if consumers take out two or three credit cards to help cover shopping.
“Unless you’re really organized, you kind of lose track of what you owe and you go from something that might bring 10% of your score in a small way to not being able to manage these cards and maybe not paying on time or racking up a little bit of a debt,” she said. “If you start making errors or missteps, that’s where things start to go south far more quickly.”
Ross recommended that any perceived credit score errors published by the three major credit reporting agencies ”“ Equifax, Experian and TransUnion ”“ should be challenged if they may create a major impact on one”™s credit score.
“I definitely encourage people to dispute things that they don’t think are accurate,” she said. “Look at all of the accounts ”“ is there an account that’s open in your name that you don’t know about? I’ve seen people go through divorces and their spouse is supposed to be managing the account, but they’re not and they’re getting dragged down by it.”
Ross also advised that all three major credit reporting agencies do not need to be contacted about the same problem.
“Typically, a dispute that gets cleared from a TransUnion report will flow over to an Experian or an Equifax report over time,” she said. “They are all connected, and disputing with one does not require you to dispute with all of them.”
