Tia Chambers first checked her credit score at age 23, after seeing a friend check his, she says.
“I said, ‘Oh boy, my credit score must be better than that,’” says Chambers, now 31, who blogged about her experience on her website, Financially Fit and Fabulous. To her surprise, it was even worse. “My credit score was a lot lower than I expected. It was actually mid to high 500.”
She felt deflated. “I thought, ‘Man, I pay my bills on time. Why isn’t my credit score higher?’”
If you’re new to credit, you might be wondering the same thing. Why does your credit score pale in comparison to your friend’s, even though you checked it on the same website using the same scoring model?
“For someone with a low credit score, there’s always — and I mean always — a logical explanation for why that score is the way it is,” said John Ulzheimer, a credit expert who previously worked for credit-scoring firm FICO and credit bureau Equifax. “It’s never random. It’s never anecdotal.”
These factors may work in your friend’s favor more than yours:
CONSISTENT REGISTRATION OF TIME PAYMENTS
You and your friend may have a habit of paying bills on time, but even one forgotten payment can bring a credit score down.
That’s part of what happened to Chambers in Indianapolis. When she checked her credit report, she discovered a forgotten unpaid medical bill in collections. She paid it, negotiated to remove the collection account from her credit report, and then noticed a slight increase in her score, she says.
Payment history is a key factor for both FICO and VantageScore Solutions, the two leading credit scorers in the United States. It accounts for 35% of your FICO score and VantageScore describes it as “extremely influential.” Payments that are more than 30 days late are reported to the credit bureaus and, like other negative numbers, can remain on your credit report for seven years.
“(A negative number) is much easier to avoid in the first place than to try and rip it off after it’s already happened,” Ulzheimer says. If you’re negotiating with a collection agency to remove a collection account from your credit report, put that promise in writing.
If you never talk about money with your friends, you may not realize that their financial situation is different from yours. Becky with the good credit score may have less debt than you.
Using a smaller percentage of your credit card’s available limit and paying off student loans can boost your credit. The amount you owe accounts for 30% of your FICO score. For VantageScore, the percentage of credit used is a “highly influential” factor, and total debt is “moderately influential”.
Chambers says she got a second job and cut spending to pay off her high credit card balance and thousands at her university.
“I saw at least 100 points of improvement by the time I paid off that debt,” she says.
LONGER CREDIT HISTORY OR HAZARDS ACCOUNT MIX
Your age, gender, sexual orientation, race, location, religion and political views do not affect your credit score. Having a high income will not increase your score either.
So what else counts? The length of your credit history, for starters. This makes up 15% of your FICO score and is “highly influential” to VantageScore. Your friend may have started using credit before you.
Applying for new accounts can also reduce your credit, but generally only a little bit. It can help to keep a mix of accounts, for example both loans and credit cards.
STEPS TO IMPROVE YOUR CREDIT
To see what’s hurting your scores, get your free credit reports from AnnualCreditReport.com, a federally authorized website. Then follow these steps:
- Dispute inaccuracies. Report errors on your credit reports to the corresponding credit bureaus.
- Pay off debts. In particular, reducing high balances on credit cards can significantly increase credit.
- piggyback. If your parents have excellent credit, ask them to add you as an authorized user on a credit card.
- Open a credit card and use it responsibly. Start with a student card or a secured card, which is a card that requires cash. Those under 21 may require a co-signer.
Finally, don’t pay too much attention to what others are doing. Credit scores vary because people’s financial paths vary. “Everyone’s journey is different,” Chambers says.
This article was provided to The Associated Press by the personal finance website NerdWallet. Email staff writer Claire Tsosie. Twitter: @ideclaire7.
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