Manage and maintain the credit you’ve worked so hard to establish in five easy steps.
Your credit score is a measure of your financial responsibility. It is a three-digit number, between 300 and 850, that is statistically derived from your payment history and credit report. The main portion of the credit report is made up of the so called FICO score, named after the company that created it.
The higher the score, the more credit-worthy you are: lenders see you as a safe risk and more willing to give you a loan at a lower rate.
Thirty five percent of your credit score depends on paying on time.
Ray Martin, a financial advisor at The Early Show on CBS, says a very good score is between 720 and 800 plus. There are several factors that determine your FICO score,said Martin in a recent interview, but the most important are your payment history and your credit usage. Financial experts recommend the following tactics to manage your credit the best way:
1) Pay on Time
Thirty five percent of your credit score depends on paying on time, said Kristen Euretig, a certified financial planner and financial advisor at Brooklyn Cooperative Federal Credit Union. The late payment status will show up on your records when 30 days late or more.The late payment status may compromise your image in the eyes of creditors, lowering your credit score, and making it seem risky for them to lend you money. Creditors might then make borrowing harder for you by increasing the interest rate so that they are compensated for the increased risk.
You should use as little credit as possible: about one-third of your credit limit.
Once a creditor reports that you are delinquent, it stays in the credit report for 7 years, unless you have a ‘good excuse’, said Yleana Garrido, a team leader in asset recovery and credit coaching at Accion USA, a New York-based micro-lender specializing in Spanish-speaking immigrant entrepreneurs.
A “good excuse,” she said, would be if a family member passed away or you have been in the hospital for a long time. Garrido offered an example of a woman, a cancer survivor with medical collection accounts. She was in a coma after an accident and couldn’t pay her bills. This was considered a good excuse allowing the late payment report to be expunged from her record, but as Garrido noted, acceptable excuses are rare. Once a creditor reports that you are delinquent, it stays in the credit report for 7 years.
2) Keep Low Balances
When you receive the bill, pay the balance in full, recommends Chris Dlugozima, a certified consumer credit counselor at the nonprofit GreenPath Debt Solutions.
You should use as little credit as possible: about one-third of your credit limit, said Dlugozima. “If you have a $150 limited card, $50 would be a reasonable ratio that would not get that person in trouble,” he said.
3) Monitor Your Accounts
Read billing statements every time they come in, recommends Yleana Garrido. It’s important to understand what’s going on with your interest rate so that you can make appropriate arrangements. If your interest goes up, you can compensate it by paying more of your principal, she said.
It’s good to have a spending plan to track how much you are paying vendors or for inventory, said Garrido.
In this country there is a legal and financial system to deal with cases of fraud, so immigrant entrepreneurs should be cautious, but understand that they have consumer rights.
4) Check Your Credit Report Every Six Months
This is necessary to track any erroneous information in your credit report. Also, carefully check your name, address and Social Security number, as people may steal your identity or mail, said Garrido.
“Creditors make mistakes,” she said. The information about your credit is kept by the Federal Trade Commission. Errors in the credit reports now happen more frequently than ever, as more people are being added in the system, said Garrido.
You can get a free credit report once a year. A credit agency will also give it to you without charge if you present them with a letter saying you were denied credit or a loan, said Garrido.
5) Know Your Rights
If a business fails through no fault of the entrepreneur, the legal system in the United States provides a certain level of protection through the bankruptcy laws, said Yanki Tshering, the executive director of Business Center for New Americans.
“In this country there is a legal and financial system to deal with cases of fraud, so immigrant entrepreneurs should be cautious but understand that they have the consumer rights,” she said.
Garrido recommends reading the Fair Debt Collection Act and the Fair Credit Reporting Act to learn about your rights as a borrower and your protections against collection agencies.
Some micro-lenders offer free credit counseling. Accion USA, for example, does not charge for credit advice services if you apply for small business loan, said José Made, a lending team leader for this micro-lender.