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Best practices of navigating credit scores

Aug 30, 2013 Sean Albert

Best practices of navigating credit scores

Credit scores have been among the most spoken-about economic segments in recent years, as these records are important indications of financial wellness among businesses and consumers. However, some would argue that too few individuals view their credit scores on a regular basis, which can cause a variety of issues including identity theft and poor chances of receiving a loan.

While the largest bureaus are often the first choices of consumers and businesses, alternative credit scores are becoming more popular since they will often target more specific categories of information. Additionally, traditional credit scoring has come under more scrutiny in the past several years, opening the door for new and progressive reporting strategies among alternative financial services providers.

Demystification sometimes necessary

The Suffolk News Herald recently explained how credit scores can sometimes be difficult to navigate, while uncertainty and a lack of awareness could cause a variety of problems for businesses and consumers alike. For example, businesses need to have an accurate perspective of their own financial situation to apply for further loans or make operational changes on a budget.

Additionally, companies that offer loans will need a clear picture of the applicant's history to ensure that credit risk management protocols are aligned with best practices and regulations. Consumers who do not receive an accurate portrayal of their own credit histories will often be poorly positioned to apply for credit or receive competitive rates on loans.

According to the news provider, the traditional approaches to credit scoring are relatively easy to understand. Generally, the payment history will constitute roughly 35 percent of the score, which will be lower or higher depending upon the timeliness of payments on any accounts that have been reported to major bureaus.

The source noted that another 30 percent of the score is made up of amounts owed, though the actual strength or weakness of this component is dependent upon the money outstanding compared to the full availability of credit. The Suffolk News Herald added that 15 percent is wrapped up in the length-of-credit history, and the other 20 percent pertains to new credit and types of loans used.

Sometimes, alternative credit scores will be easier to navigate, especially as they will be more tailored and targeted.

Building scores made easy
Daily Finance recently listed some of the ways in which consumers and businesses can repair their credit scores, which can be especially helpful when trying to take out loans down the road. For one, individuals or companies can take out a loan that actually acts as a credit builder, which will often entail a high number of payments at lower volumes.

Paying bills on time, especially several accounts, can quickly improve a credit score. Additionally, taking out credit and keeping the balance at zero will substantially improve a credit score over time.

The news provider suggested self-reporting and leveraging rent or mortgage payments as other examples of good credit histories. Businesses and consumers that wish to quickly repair their credit can also get assistance from a variety of public resources, such as the Federal Trade Commission.