8 steps to great credit
Having a good credit score is more valuable than you might think. Here are eight simple ways to make sure you’re getting the highest score you can.

Lenders view your credit score as a measure of your financial trustworthiness. They’re more likely to lend you money and charge you a lower rate of interest if your score is good. So, it’s in your best interest to try to build the best credit rating you can. While you can’t raise your score overnight, you can improve it if you follow these steps:

1. Establish a credit history.
In order to have the best credit rating possible, it’s important to establish a history of responsible borrowing. If you currently don’t have any credit history, you may want to consider applying for a gasoline company credit card. Not only are these usually easy to obtain, but gas cards can be a great way to charge regular small purchases each month without being tempted to overspend.

2. Pay your bills on time.
Late payments are often the single biggest factor in a low credit score. When you receive your credit card statements, utility bills and other payment notices, put them in a prominent place where you won’t forget about them. Or, better yet, to ensure they’re always paid on time, arrange to have them automatically paid each month via direct debit from your bank account. If you do this, however, take care you maintain a sufficient bank balance to cover them so you don’t end up getting hit with charges for having insufficient funds.

3. Review your credit reports.
You can request a free credit report from each of the three bureaus (Experian, Equifax and TransUnion) once a year (go to www.annualcreditreport.com), or request your free credit report and score through LendingTree®. Review your files at all three bureaus, and if you find mistakes or missing information, contact the bureau to resolve the issue. Instructions for reporting errors are on each bureau’s Web site.

4. Reduce your debt.
Sure, it’s easier said than done, but try to lower your credit card balances and lines of credit a few months before applying for a mortgage or personal loan. One of the important factors included in your credit score is the difference between the current balances and the available limits on your accounts. Try to keep the balances under 30 percent of their allowable limits.

5. Make sure lenders report your credit limits.
Here’s a tip that few people know about: Some credit card issuers do not report your credit limit to the bureaus, so your account may appear to be maxed out even when it’s not. For example, if your card balance is $1,200 and your limit is $12,000, you’re at a very healthy 10 percent ratio, but if your limit is not reported, your score won’t reflect this. Correcting the problem — by asking credit card companies to report your limit — may improve your score considerably.

6. Confirm your good credit history has been reported.
When you check your credit report, you may find there’s no record of a loan you successfully paid off or a credit account that you’ve kept current. If so, ask the lender to report this positive history to the credit bureaus or send a letter to the bureaus yourself, along with copies of the statements showing you’ve paid on time.

7. Don’t apply for, or cancel, accounts you don’t need.
If your credit report shows you’ve applied for a lot of different kinds of credit in a short period of time, your credit score may drop, especially if you have a short credit history or few existing accounts. (However, multiple inquiries within 14 days for home and auto loans are counted only once.) That’s why it’s usually a bad idea to sign up for cards you’re not likely to use. If you have already opened a number of accounts, however, don’t rush to cancel them. Closing accounts, especially ones you’ve held for a long time, will reduce your available credit and may shorten your credit history, which can lead to a lower score.

8. Monitor your credit regularly.
While an annual credit check is often enough, if you’re actively trying to improve your credit it’s a good idea to track it more regularly. There are many companies that offer credit monitoring services. (For example, if you apply for your credit report and score through LendingTree, you will also receive a free trial membership in LendingTree Credit Monitoring, a service that monitors all three of your credit bureau reports daily and sends you email alerts regarding any key changes.)  

Why should I check my credit report regularly?
Checking your credit report allows you to keep track of your financial progress, as well as catch any mistakes or fraudulent accounts.

1. To detect identity fraud early
We all know we should check our credit card statements every month for charges that we haven’t made. But that only catches the thief who uses an account you know you have. Scan for signs of possible fraud with your free credit report.

In the past few years, identity fraud has risen dramatically. In this insidious form of credit fraud, a thief steals your good credit by taking over or opening accounts in your name, running up large balances and leaving you to deal with the collectors when they come calling.

New accounts opened with your identity will appear on your credit report, revealing identity fraud to you. If you don’t check your credit report, it could be months before the credit grantor, fed up with nonpayment, turns the account over to a collector who tracks you down and demands payment for a loan you’ve never even heard of.

As with much less problematic inaccuracies, identity fraud is something you can detect and remedy most effectively by checking your credit history thoroughly and on a routine basis.

2. To become an informed consumer of credit services
Your credit report can have a dramatic impact on your financial stability. With good credit, you can obtain benefits of all kinds – a home mortgage or lease on an apartment, an auto loan, low-interest credit cards and more – with ease. But if your credit history is poor, many of these financial options may be unavailable to you. Either way, you have a right to know what to expect when a lender runs a credit check on you.

Aside from paying your bills regularly and on time, the single most important thing you can do to ensure that when others check into your credit they’ll find you to be a good risk is to be aware of the contents of your credit report. Check your report for free and approach lenders with confidence.

Studies have shown that many credit files contain inaccuracies that can harm your credit rating, leading to rejections when you apply for loans, insurance, or even a job. Often the result of simple human error, they can be caused by anything from a clerical error to a computer glitch in which your file is mixed with that of someone with a similar name.

That’s why it’s essential that you check all of your credit files – and monitor your credit regularly – to protect your good credit standing, even if you always pay all your bills on time.

And if your credit is less than perfect now, checking your report will help you identify lingering problems so you can deal with them effectively and move on toward an improved credit standing. Whatever your situation, reviewing your report regularly is the only way to be sure that you will go into any credit conversations knowing everything lenders will know.

This information is provided in partnership with ConsumerInfo.com, an Experian company.

Credit bureaus can sell personal data
Borrowers who inquire about a loan may be inundated with unsolicited loan offers.

Did you know that whenever a lender obtains a copy of your credit report, that your name, telephone number and other information might be sold to other lenders as part of a “trigger lead” program?

Not many borrowers know about trigger leads, but these programs are familiar to lenders and mortgage brokers, who can purchase these leads for as little as 35 cents apiece.

What is a trigger lead?
When you authorize a lender to “pull” (i.e., obtain) your credit report as part of a specific inquiry about a loan, the information in your report automatically becomes part of the credit bureau’s trigger lead program.

This pool of information is searched against criteria or “attributes” selected by lenders and mortgage brokers who want to buy trigger leads. Searchable attributes include your age, gender, state of residence, annual income, monthly mortgage payment, credit score and so on. If your information matched the selected attributes, your name, telephone number and home address would be sold as a trigger lead.

For example, suppose a mortgage broker wanted to target prospective home-loan borrowers who lived in California, owed at least $300,000 on a current mortgage and had credit scores of at least 550. If you inquired about a home loan and your data matched those selected criteria, your name and contact information could be sold to that broker. The broker then could use that information to contact you and attempt to obtain your business.

Trigger leads may be sold 24 hours after your credit report was pulled. A so-called “soft pull,” e.g., a credit report inquiry that you didn’t initiate with a specific lender, typically wouldn’t become a trigger lead.

Pros and cons of trigger leads
Some people like the idea of being contacted by multiple lenders who are eager for their business so they can comparison shop among a wide range of options. The credit bureaus don’t limit the number of times a trigger lead can be sold, so one credit inquiry potentially could result in dozens of contacts.

If you’re comfortable with this open-door approach, you still should exercise caution and be sure to deal with reputable professionals. The ability to purchase trigger leads doesn’t necessarily mean an individual or company is reputable or trustworthy.

Other people don’t like the idea of having their personal data sold in this way. These individuals may be concerned about privacy or identity theft or may not wish to receive unsolicited telephone calls or mailings. (Trigger leads normally are scrubbed against the national do-not-call list.)

How to opt out of trigger leads
If you don’t want your information to be sold, there are two ways to opt-out of trigger lead programs. One way is to complete and submit an online form at www.optoutprescreen.com. This method stops trigger leads for five years. The other way is to complete a separate form at the same Web site and then print, sign and mail a letter generated by that form to confirm your opt-out request. This method stops trigger leads permanently.

Both of the opt-out methods take five days to become effective, so if you don’t want your information to be sold, you need to opt-out at least five days before you make a specific inquiry. If your information is already in the trigger lead pool, you may continue to receive telephone calls and mailings for some time after you elect to opt out.

How to keep your debt under control
Debt can be a good thing when it’s carefully managed. Follow our tips and stay in the driver’s seat.

Borrowing money can be an essential part of achieving your dreams, but it’s important to borrow wisely and keep your debt under control. Without discipline, it’s easy to get in over your head and end up with a bad credit rating. One of the best ways to prevent this is to understand the difference between good debt and bad debt.

Avoid bad debt
Debt is like cholesterol – there’s a good kind and a bad kind. A prime mistake people often make is incurring too much bad debt. Things to avoid include:

• Carrying too much debt on credit cards
  For most people, credit cards are a daily fact of life. But it’s important to manage your use of plastic. Many people will borrow against credit cards (don’t forget, a credit card is often just a higher-interest loan) in order to buy new clothing, electronics, entertainment and other nice-to-have items. But this is a bad-debt gamble.

  The longer it takes you to pay off a credit-card loan, the more interest you’ll pay. If you’re only able to afford making minimum payments each month, you could end up spending hundreds, if not thousands, in interest on relatively small purchases.

  Also, make sure when you apply for a credit card that you understand how the interest on your account is going to be charged. You may find that interest is charged on cash withdrawals, for example, from the date of withdrawal rather than the date the statement is due. And watch out — many cards with low introductory rates only have them for a limited time, after which their rate skyrockets.

• Zero-money-down loans
  It’s easy to be tempted by ads that promise items for sale at “no money down, no interest for one year.” But if you can’t pay off the loan by the due date — normally 12 to 18 months ­– the interest rate usually balloons, often to over 20 percent.

  In the worst-case scenario, along with owing the original amount, you may even find yourself liable for retroactive interest on all the monthly payments you’ve delayed. All of a sudden, you could be faced with a big bill for hundreds or thousands of dollars.

  Be sure to read the fine print when considering such deals. And be disciplined. Avoid spending sprees that rely on zero-money-down loans unless you’re absolutely sure you’ll be able to pay off the loan when it comes due.

Manage good debt
Good debt is like an investment: Incurring it usually reaps a reward. It includes such things as:

• Mortgages
  A mortgage lets you to purchase a home that can enable you to build equity. Not only is it a tangible asset that you can use, but it also has the potential to increase in value.
• Home equity loans
  A home equity loan can enable you to borrow money at a lower interest rate than an unsecured loan. It’s therefore a good way to obtain capital for such things as home improvements, which can increase the value of your home. But remember, the loan is secured against the value of your home. You must be careful to meet your monthly payments or the lender could take possession of your home.
• Student loans
  A student loan fosters professional advancement and usually leads to a higher salary and more job satisfaction.

You can maximize the value of good debt through careful management:

• Watch interest rates and try to lock in a low rate on a mortgage.
• Consolidate high-interest loans into one lower monthly payment.
• Use any unexpected financial windfall to try to eliminate bad debt.

The key is to actively work your debt. Be its master, rather than its slave. Keeping debt under control may seem like a lot of work, but the money you save will be well worth the effort.

Myths and facts about credit scores
Confused about credit scores? Here are some facts you need to know.

Credit scores may be one of the most mysterious and misunderstood aspects of the home loan process. They’re also among the most important factors that determine whether you’ll be able to qualify for a specific loan product. That’s why you should educate yourself about credit scores and understand these facts:

Myth: You have only one credit report and one credit score.
Fact: You have only one credit history – yours. But you probably have at least three credit reports and three credit scores generated by the three major credit bureaus, Transunion®, Experian® and Equifax®.

Myth: The biggest factor in determining your credit score is the number of inquiries from creditors that appear on your credit report.
Fact: Your credit score is determined by several factors, and the number of inquiries is just one small piece of the credit score puzzle. The factors that determine your credit score include payment history, amounts owed, length of credit history, new credit (including number of recent credit inquiries), and types of credit used.

Myth: Too many “soft” inquiries can hurt your credit score.
Fact: “Soft” inquires made by companies that might want to offer you credit in a promotional manner have no effect on your credit score. Nor does checking your own credit report have an effect on your credit score. Rather, checking your own credit is a smart financial habit.

Myth: You can pay someone to “fix” your credit.
Fact: You can educate yourself about credit and improve your own credit score over time, but credit repair services typically can’t do much for you that you can’t do on your own if you put in the time and effort.

Myth: Getting married merges your credit history with your spouse’s.
Fact: Getting married doesn’t merge your credit history with your spouse’s, except to the extent that you and your spouse both become contractually responsible for the same debts (e.g., a joint credit-card account). A “merged” credit report includes both your credit and your spouse’s, but doesn’t merge your separate credit histories.

Myth: Getting divorced separates your credit history from your spouse’s.
Fact: Getting divorced doesn’t end your responsibility for debts that you are contractually obligated to pay. Nor does it end your ex-spouse’s responsibility for debts that he or she is contractually obligated to pay. That’s true even if your divorce decree stipulates that one or the other of you will pay those debts.

Myth: People who earn high incomes or are wealthy always have high credit scores.
Fact: Neither income nor personal wealth has any effect on your credit score. In fact, some people who have high incomes have low credit scores and some people with low incomes have high scores. Remember, your credit score is all about how you manage your debts – no matter how big or small your income.

Check your own credit report
To check your credit situation, request a free online credit report and score from LendingTree.

What’s your credit IQ?
Credit can be tricky to understand. Test your knowledge of credit reports and scores to see how much you know.

How well do you understand what goes into your credit report and credit score? Take our quiz and find out.

Check which of the following are true or false:

1. As soon as you pay off an overdue account, the late payments are removed from your credit report.

 True
 False

2. When shopping around for a loan, it’s best to make all your inquiries within a short period of time.

 True
 False

3. Filing for bankruptcy will erase the blemishes on your credit report and allow you to start from scratch.

 True
 False

4. You can request a copy of your own report without lowering your credit score.

 True
 False

5. You only need to check your credit report with one of the three credit bureaus.

 True
 False

6. Your income has no effect on your credit score.

 True
 False

7. A good way of raising your credit score is to obtain several credit cards, even if you don’t plan to use them.

 True
 False

Add up how many you answered correctly:

1. False. Paying the balance of an overdue account is always a good idea. However, missed payments will still show up on your report because they are part of your credit history. Delinquencies of 30 to 180 days will stay on your report for seven years from the date of the missed payment. The good news is that older delinquencies gradually become less of a factor in your score.

2. True. Whenever a lender contacts a credit bureau to access your file, it can lower your credit score by several points. However, credit bureaus and lenders recognize that people often shop around for the best rate and terms on a loan, so they have adjusted their formulas accordingly. In general, any inquiries you make about a mortgage or car loan within a 30-day period count as just a single inquiry when your score is calculated.

3. False. For people in severe financial distress, declaring bankruptcy may be the only option. But while a bankruptcy can erase your debts, it will not wipe clean your credit report. Bankruptcies will be noted on your credit report for seven to ten years, depending on the type of bankruptcy you file for.

4. True. Checking your own credit report will not lower your score. In fact, it’s a good idea to monitor your credit file regularly to make sure that it is accurate. (For more information, read the article here.)

5. False. While Equifax, TransUnion and Experian use similar formulas when calculating your credit score, each collects its data independently. Therefore, each bureau may have slightly different information in your file, and it’s a good idea to check your report with each of them.

6. True. Whether you make $20,000 or $500,000 a year has absolutely no bearing on your credit score, and your income does not appear anywhere on your credit report. However, lenders will consider your income when determining how much money they are prepared to lend you.

7. False. Using a mix of credit accounts — a mortgage, a car loan and a credit card, for example — and making regular payments on all of them will help you establish a solid credit history. However, opening accounts you won’t use does nothing to build up a positive credit rating. It may even backfire as too much available credit can lower your score. You should only apply for credit cards that you genuinely need.

What your score indicates:

6 to 7: You’ve a top-notch credit IQ. Your thorough understanding of credit reporting means you’re well prepared to start shopping for a loan. Get started at www.LendingTree.com

4 to 5: Your credit IQ is about average. You have a basic grasp of how credit reporting works. Rereading the answers to the questions you missed will help you be better prepared to go ahead with a loan application.

Less than 4: Your credit IQ indicates you could benefit from learning a little more about credit reports and scores. A good place to begin is the LendingTree Smart Borrower Center.

Credit categories dictate loan products
Borrowers who score high are offered most attractive interest rates and terms.

If you’re wondering how lenders decide which loan products to offer to which borrowers, you might want to learn more about mortgage credit categories, which include Plus, A, Alt-A, B, C and D.

High credit score can smooth loan process
While guidelines may differ slightly from one lender to the next, borrowers in the Plus category typically are offered the very best available combination of interest rate and terms. These well-positioned borrowers, who typically have a credit score of at least 720, also may be able to obtain a mortgage more quickly and with less documentation than other borrowers can expect.

The next-best loan products are those in the A and Alt-A categories, which typically are offered to borrowers who have credit scores in the neighborhood of 680-720 for A-quality and 650-680 for Alt-A-quality products. The difference between A and Alt-A may be as little as 10 points on your credit score or whether your income will be documented or only stated on your loan application. Either way, the difference will depend on the guidelines for specific loan products.

B, C and D-quality loan products generally entail higher interest rates and higher closing costs to compensate the lender for the statistically higher risk of lending to borrowers who have lower credit scores.

Some people also use the terms “prime,” “subprime” and even “non-prime” to describe categories of borrowers or loans, though these terms tend to be ill-defined. “Prime” may refer to loans offered to borrowers who have good credit while “subprime” may refer to loans offered to credit-impaired borrowers. And while some lenders might equate Plus and A to “prime,” the terms “subprime” and “non-prime” can’t be definitively matched to the more specific B, C or D categories.

Larger down payment can offset lower credit score
While your credit score is important, it’s not the only factor that determines which loan products you’ll be offered. The dollar amount of your down payment, the ratio of your loan amount to the purchase price of the home you want to buy, and the ratio of your monthly debts to your monthly income are also important and may be weighed more heavily for borrowers who have lower credit scores.

For example, a borrower whose credit score was only 520 might still be offered somewhat more attractive pricing or terms if his or her debt-to-income ratio was low and he or she could make a down payment of, say, $30,000 to buy a $100,000 house. The low debt-to-income ratio and high loan-to-value ratio might mitigate the risk of the relatively lower credit score from the lender’s point.

Multiple factors determine loan products
Borrowers needn’t worry about the finer points of differentiation among mortgage credit categories. The more important point is that your credit score, down payment, loan-to-value ratio and debt-to-income ratio are all important factors that should determine which loan products you’ll be offered. The less risk that’s built into your personal situation, the better-positioned you’ll be to save when you obtain a home loan.