Stacy Wall
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Reports are free by law. Scores cost money.
Under federal law, you are entitled to get your reports for free (once every 12 months) from http://www.annualcreditreport.com. You can get a free annual credit report from each of the 3 major credit bureaus. It’s is a free service, mandated by the government and you don’t need to provide your credit card details (See free-government-credit-report.html for more details).
Credit scores is a different story. It’s a product, and as such it cost money. The only score lenders use if Fico.
The only place consumers can purchase real FICO scores is MyFico.com. One time purchase cost around $20. Third party monitoring services use Fakko scores. All three credit bureaus now sell consumers non-FICO scores that are on a different scales. There is no comparing these scores and they are practically worthless.
CreditKarma.com offers a free score estimator based on your TransUnion credit report. It is not “Real” FICO but within 50 points or so and very correlated. Good enough if you are just curious about your score.
Actually, you need both
Both loan and credit card are good to start building credit. In order to build a credit history you need to use credit. The amount doesn’t matter. $10 or $1,000 builds the same credit. You need a stream of timely payments for a minimum of 24 months. With time your score will go up.
Both an installment loan and a credit card will do the job. However, choosing just one will build you a fair score. For a good score you’ll need both, because credit type diversity is actually good for your credit.
The thing is – you won’t qualify for a loan or credit card (unless you find a co-signer or can be added as an authorized user on your parents/wife card/loans)
This leave you with secured loans and credit cards. They are much easier to get (because you deposit a collateral), and build credit just the same.
A few more tips:
- Use the card for a few small purchases.
- Wait for the statement, and then pay it in full to avoid interest
- Avoid carrying a balance on your card. It doesn’t build credit, but very expensive (because of the interest
Good luck.
No. It’s the other way around
What builds credit is a stream of timely payments. Since 90% of your Fico score is determined by last 24 months activity, you actually need your credit report to show 24 timely payments dating 2 years back.
Paying student loans or installment loans builds credit over time. Paying off the loan does nothing special for your credit/score. The paid-off loan becomes a closed/paid account in good standing which looks good on your credit report but does not count as much in your score as opposed to open, active lines of credit.
If you made at least 24 payments then your score should be between 660/749 which is a good score (assuming you have no negatives on your credit report).
The only positive side of paying off the loan is that you can save a lot of interest if you do. Sometimes it’s smarter to think with your pocketbook and not worry about your score, although having a good score can save you money if you plan to take a car loan or a mortgage.
You need a clean report these days to get a mortgage
People aren’t aware that Fico score is not everything. Especially these days, and certainly with mortgage applications.
Your Fico score is important, but it’s only a small part of the lending decision. Mortgage companies today require a clean credit report.
Unpaid doctor bills usually go to collection. From there they are reported to the credit bureaus and find their way onto your credit report as derogatory items.
While up to 2010 a credit report with one or two derogatory items would be considered acceptable, today lenders expect a clean report for a standard mortgage approval. Your wife needs to resolve these items if you want to get a mortgage.
Contact the collection companies and either pay in full or negotiate a settlement. You don’t need a “pay for delete” settlement, which may be very hard to get. A “Paid” or “Settled” status with a zero balance will do. It won’t improve her score, but unless you resolve these derogatory items you don’t stand a chance.
Other factors that go into the mortgage decision are: stable minimum 2 year work history, salary, debt to income ratio, other assets, down payment and closing costs.
It’s actually a bad idea
Paying the credit card company before they send you the statement is actually a bad idea. Not only it won’t help you build good credit, It will not build credit at all for you!
The credit card companies report to the credit bureaus on a monthly basis. Usually they report three things: your credit limit (an important parameter of your Fico score), your current balance and your payment history.
When you pay before the statement has been sent to you it will show as a $0 balance on your statement and on your credit report.
At first glance it may seem a good idea – to have a zero balance. But as far as credit scores are concerned – this actually has the same effect as not using credit at all, which doesn’t build credit!
So, if you want to build good credit and raise your Fico score, wait for the statement and pay it before the due date.
BTW, if you wait for the statement and pay it in full you enjoy the most important feature of credit card which is the no-interest grace period between when you made the purchase and the due date. If you pay your statements in full before the due date you will never incur interest. A shame to miss it!
Sure it counts
An inquiry is an inquiry is an inquiry…
All inquiries count. An inquiry has nothing to do with being approved, being turned down or by you accepting/rejecting an offer.However, one inquiry has a very small effect on your credit score. Just a few points, and only for a short period of time.
Inquiries only affect your score for 12 months, and if you don’t have too many (2 are certainly not many) then you have nothing to worry about.
There is no such thing as Government free credit score
I’m always surprised again at the number of people that confuse between credit reports to credit scores.
According to the FACT Act, which is the government regulation enacted to regulate the credit reporting business, you are entitled for a free copy or your credit report annually. This does NOT include a free credit score. Although your credit score must be provided to you upon request – this service is not free.
If you Google “free credit score” you will get many results with companies offering “free” credit scores and credit monitoring. Don’t fall for them. It’s never free. At most – it’s a 7 days free trial, but you can’t enroll without supplying them your credit card details. You may or may not (I’ve never tried them myself) get the free trial, but then you forget or run into trouble canceling and the service automatically converts to one you need to pay for, usually $15 – $25 a month.
There are other ways to get free fico credit score. Your bank or your credit company may give it for free as part of their financial services. I get a totally free credit score both from my bank and my credit card company. I’m self employed so maybe they give it only to people with substantial account activity only. I’m not sure about it, so inquire with your bank.
Another very good option I can recommend to you is Credit Karma. They offer completely free credit score, credit monitoring and a fico calculator. It is based on your credit file from TransUnion, and the score they offer is the TransUnion’s version of FICO. It’s very close to your FICO score, and people report that it’s much correlated to it as well.
Quizzle also gives away free credit scores. I’m not sure how good they are. Google it and look for reviews.
See free-annual-credit-score.html and free-fico-credit-score.html for more information.
