The Planner's Perspective: Clean Credit

By Paul Morrone, CFP ®, CPA, MSA

It sometimes feels like your credit score is conjured up by Oz behind the curtain.

You never know what it is, you never know which credit bureau is going to be reporting your score (Transunion, Equifax, Experian) and you never know which score is being used (FICO score 8, FICO score 7, Vantage Score) by your lender. Unfortunately for the consumer, there is little uniformity in the world of credit reporting, even though disclosure of the credit score used in making lending decisions by your lender is required under the Fair Credit Reporting Act. The best proactive approach is to try stay on top of maintaining a healthy credit profile given the tools that are available and follow some best practices to keep your score at the highest level possible. Your credit score will determine not just whether you will be approved for a loan, but impacts everything from the interest rate you pay to the size of the loan you will be approved for. Your landlord may also use your credit score to determine whether your will be able to rent an apartment and utility companies may use this information to determine whether you are eligible for their services.

Finding out one of your many credit scores is becoming easier as technology gets better. Many credit card companies will disclose your score to you as part of your cardmember benefits. If you do not have a credit card that offers this, you can always use a free credit score service such as www.creditkarma.com to help establish a baseline. Any of these services will give you an idea of the items that are reported to the credit bureaus and some of the negative factors that are impacting your score. It will also give you an opportunity to see the information that has been reported to the credit bureaus and dispute any items that you feel are inaccurate that may be negatively effecting your score.

Below are some quick tips to help you clean up your credit score:

• Payment history – make payments on time to avoid any derogatory marks
• Credit utilization ratio (does not include mortgage debt) – the lower the better, it shows that you are not relying on credit to finance your lifestyle. Keeping this under 30% is critical.
  • It’s important to note that this is viewed not just overall (total credit used divided by total credit available) but also by each specific credit card. Said differently, one maxed out card can have a negative effect on your score!
  • Store-branded cards often give you a low limit, especially when making large purchases (mattress, appliances, etc.). Be careful not to max out that card with one single purchase!
• Length of credit history – keeping accounts open for a long period of time can help increase your score
• Hard Inquiries – these inquiries hit your credit report when you apply for a credit account, the more accounts applied for in a short amount of time, the bigger the negative impact on your score

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.