Michael Nolen was unhappy with his credit report. It was back in 2010 when the Atlanta-based real estate agent saw his credit score drop by more than 100 points. A housing market drop and dwindling home sales made commission checks harder to come by for agents like Nolen, who as a result maxed out his credit cards and depleted his cash reserves.
“My credit score was good enough for the things that I needed, but not high enough for larger purchases, such as a new vehicle,†says Nolen. To improve his financial status he started paying all credit card and loan bills on or before their due dates. He paid down all open lines of credit to the point where their individual balances didn’t exceed 33% of their total available credit. “One card with a $3,000 limit, I never let my balance exceed $1,000,†Nolen explains.
As the real estate market–and his business’ sales–slowly began to improve, Nolen says improved cash flow allowed him to pay more than the minimum amounts owed on each card. His efforts paid off with his credit score increasing 50 points in January 2011. “I’ll keep working at it,†says Nolen, “and watching that number grow.â€
Your credit rating or FICO score, which ranges from 300 to 850 (the higher the better), is based on accumulated information that tells lenders whether or not you’ll pay back your loans on time and in full. A score above 700 is considered good. “A poor credit score can affect different aspects of your life,†says Bill Hampton, general partner with certified public accountant and business
consulting firm Bishop, Hampton & Associates L.L.C. Certified Public Accountants and Business Consultants in Atlanta. Landlords look at scores when deciding whether to rent. Insurance companies use them to determine whether or not to provide auto, home, or other types of coverage. Employers even use scores when making hiring decisions.The negative impact can go beyond the one-time denial. “From a long-term perspective,†says Robbie Hampton, managing partner at Bishop, Hampton & Associates, “paying higher rates to finance companies and lenders decreases your wealth and ability to pass assets down to future generations.â€
There are ways that you can better manage your debt and improve your credit rating. Several personal finance tools and mobile apps provide monthly credit score updates plus track spending and saving. Here are four worth checking out.
1. Equifax offers a free app that allows you to track your credit score and handle other tasks from an iPhone, iPad, or Android phone. Using your phone’s GPS location, this app also shows you how your credit measures up to others in your area and alerts you to key credit file changes.
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2. Experian offers the FreeCreditScore.com app for subscribers to its service (free trial available), which provides credit score alerts, a credit score center, and credit score estimator to help you plan for major financial decisions. Subscribers also have access to fraud resolution and other services.
3. Loan Shark’s iPhone app helps users figure out the impact of additional monthly or yearly payments, and determines equity and trade-in values for homes and cars. Priced at $2.99, this app lets you create a full amortization table that includes the details of each month’s payment.
4. Credit Card Statistics is a free Web-based tool via AnnualCreditReport.com that offers information on credit scores, current balances, credit limits, and credit limit use. This site allows you to request a free credit file every 12 months from each of the major credit reporting companies: Equifax, Experian, and TransUnion.
When you review your credit score and explore ways to improve it, remember there “is no magic formula,†says Robbie Hampton. “Everyone starts at a different number that’s impacted when loans are paid off or brought up to date. The most important step you can take is to commit to improvement and stay on course.†Be patient: It’s a lot easier to reduce a credit score than to raise one.