For just a minute, forget all the bad news we get dumped on us every day.
Here’s an honest-to-goodness, real-life, genuine, bonafide bit of good news. Actual good news. Scout’s honor.
Next time you apply for a car loan, new credit card or an apartment lease, your credit score might be more forgiving — even if you’re carrying some debt.
Why’s that? Because one of the major credit scoring models is dramatically changing the way it looks at your debt.
VantageScore is a credit scoring model developed by the three major credit reporting bureaus — TransUnion, Equifax and Experian.
Beginning this fall, VantageScore will look more at “the big picture.”
That means it will evaluate the overall trends of your credit use over time, instead of simply judging how creditworthy you are based on one particular snapshot in time.
Here’s the upshot, according to the Washington Post: It will calculate whether you’ve been actually paying off your debt or just racking up more of it.
The website Lifehacker put it another way: “This could be a drawback for some consumers, but it’s good news for consumers who are actively working to pay down their debt.”
This is more good news for consumers. As we reported in April, 12 million Americans might see a credit score bump in July because the major reporting agencies are dropping tax liens and civil judgements from creditworthiness evaluations.
How to Make This Work For You
Of course, in order to make this change work in your favor, you have to actually be trying to pay off your debts.
When it comes to buying a house, most mortgage lenders use your FICO credit score, which is calculated differently.
However, many other lenders will be checking out your VantageScore before extending you credit.
Now more than ever, it’s important to tackle your debt. The conditions have never been riper to raise your credit score. Your chances of getting a favorable interest rate on your next auto loan or credit card depend on it.
How exactly do you do that? Here are three ways to get started:
1. Figure Out What You’re Dealing With
Map out exactly what kind of debt you have.
For example, which companies do you owe money to? Are any of your debts in collections? What are your minimum monthly payments on each credit card or loan?
An easy way to do this is to sign up with a free service like Credit Sesame. This tool shows your balance on any unpaid bills, credit cards or loans. It also offers tips on reducing your debt and raising your credit score.
2. Consolidate Your Debt
Once you fall behind, you may find yourself getting crushed by credit card interest rates north of 20%. You’ll never catch up that way. You’re spending so much on interest, you’ll never pay off your balances.
If you’re financially treading water like this, it might be worth consolidating and refinancing your debt.
By refinancing an existing loan, you’re taking out a totally new loan, which comes with new terms and (ideally) a lower interest rate. By consolidating your existing loans, you lump all your debt into one big payment, so you’re only making one payment and dealing with one interest rate per month.
Make sense but don’t know where to start? Credible is an online marketplace that offers consumers personalized loan offers. Think of it like Zillow — but for personal loans.
Rates start at 5.99%, and you can check yours by entering a loan amount here ($500 to $40,000) and comparing your personalized options in under 90 seconds.
3. Protect Your Identity
What if you work hard to pay down all your debt and you’re totally responsible with your credit going forward — only to take a hit because of identity theft?
We know you don’t want to risk all your hard work.
A free service like TrueIdentity helps you avoid this situation by keeping a watchful eye on your finances. It sends alerts by email, phone or text if someone tries to apply for credit in your name.
Again, now is the time to be doing all this. Since credit rating agencies are going to be evaluating the “big picture” of how you use credit over time, this is your opportunity to paint a prettier one.
Your turn: Do you know your credit score?
Disclosure: This post contains affiliate links. May we all be a bit richer today.
Mike Brassfield (mike@thepennyhoarder.com) is a senior writer at The Penny Hoarder. Frankly, his credit score could be better.
This was originally published on The Penny Hoarder, one of the largest personal finance websites. We help millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. In 2016, Inc. 500 ranked The Penny Hoarder as the No. 1 fastest-growing private media company in the U.S.source The Penny Hoarder http://ift.tt/2pDrgcP
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