When reviewing a credit situation or teaching a class on credit scores, it is always interesting to get feedback. People always state that they know a lot and are an “A” student in understanding their credit score. After a review is complete however, they quickly discover that many important points have been completely overlooked, and their credit score understanding is more like a “D”. As one professor put it, “The vast majority of individuals do not even have any fathom idea of all the factors impacting their credit scores.”
No one wants to be told that they don't understand something. But I hear this a lot when completing a credit review, “I thought I was an ‘A’ in understanding my credit score when in actuality, I am really a ‘D’.”
The Missteps
Most individuals are always looking at utilization ratios, collections, late payments and inquiries. I hear it all the time; “This company pulled my credit report and my scores dropped 35 points.” Or, “I am getting my utilization ratio on ABC Bankcard under 30%.” They fail to realize a balance with a car loan, the deferred student loans, or a missing account with a certain type of lender. There are always points missed in a every review I have seen.
Executive Director of the Consumer Federation of America Stephen Brobeck stated several years ago, “Consumers are not as knowledgeable as they think. This increases the costs of their credit and insurance, (and) also reduces the availability of other services.
This is absolutely true!
The 5 Critical Questions to Ask Yourself
My questions I pose to everyone:
- What credit score model are you following?
Is it the Classic FICO Score used in most lending?
- Where can you access the Classic FICO Scores?
Do you know where to go to access them? Their availability is limited.
- Do you know how many grades a mortgage lender or an auto lender uses to grade your credit score qualifications? Do you know what your credit score grade is?
There can be upwards of almost a dozen different grades. Most everyone does not know this because of the complexity.
- Do you know the added costs if you are not an “A” credit score?
There are always costs that can cost you several thousands of dollars. Again, the complexity makes it difficult to know this.
- Do you know one step you can do to improve your FICO Scores?
Do you have to close an account, open an account, pay down an account, or use
a certain credit card?
Do you really want to know?
Or do you want to think you have a grade “A” knowledge with less than stellar understanding? One husband emails me a few weeks ago to ask for help with his wife’s credit score which is 603. Then he emails me a day later, “I understand credit and there is nothing you can do to help us out.” That is the type of thinking that will cost you a lot of time and money!
Mr. Brobeck is right! The less each consumer knows, the more that person will pay in extra fees – and it is a lot more than everyone realizes.
For this reason alone, it is worth becoming more knowledgeable – it will save you a lot of money!