Here’s to Your Health! VeraScore
By: Geff Woodward
Not all 80-year old’s are created equal. It would be ridiculous and even dangerous for doctors to assume that. Doctors evaluate physical health on an individual basis. Some 80-year old’s run marathons and some 50-year old’s can’t walk up a flight of stairs. But unlike physical health, your financial health is judged by one number – your credit score. All 700s are the same, despite any individual circumstances. And what’s worse is that unlike physical health where there are well-established factors - i.e. smoking is bad for you, exercising is good – financial health is judged on factors that often seem counterintuitive. Things that would appear to be good for your financial health can actually negatively affect your credit score. It’s almost like your doctor saying “maybe you should wear your seatbelt less often.” Here are a few things you might not be aware of that negatively affect your credit score.
Credit Limit
In a rising rate environment, people should probably be lowering their credit limits, thus limiting their exposure to “expensive” debt. Sort of like wearing a seat belt to reduce risk of injury. But with the current credit scoring system, lowering your credit limit will negatively affect your credit score because your credit utilization rate will increase. Ironically, obtaining additional credit cards will increase your credit score, even though it exposes you to more potential debt. Contrary to common sense, paying off the balance on your credit card each month will result in a lower credit score than if you actually carried a small balance from month to month.
Multiple Lines of Credit
We’ve all heard that having your credit score checked too many times will make it lower. This is due to the scoring algorithm used for a “hard credit inquiry.” This is the “inquiry” that is used before any credit can be extended to a consumer and can lower your score for up to 2 years – whether you take out the credit or not.
Paying Off Loans
Paying off loans can often cause a drop in your credit score. When you pay off a loan it does several things i) reduces the total number of credit accounts that you own, ii) reduces your credit mix between installment accounts (e.g., loans) and revolving accounts (e.g., credit cards), and iii) reduces the overall length of your credit record. When you have different types of credit loans, it shows that you can manage different types of debt.
Bankruptcy, Foreclosure or Lawsuits
These are some of the more obvious issues that can have a devastating effect on your credit score. The bigger issue is that despite these things generally being a one-time event, they will affect your credit for years to come. They place the consumer in the equivalent of “financial jail” for 10+ years without the possibility of parole. It’s like having your license revoked for one speeding ticket. With VeraScore, creditors can see a complete picture of your financial health thus determining whether you are a one-time or repeat offender.
VeraScore to the Rescue
VeraScore does not utilize the “hard inquiry” because a consumer can look at their own VeraScore100 times a day, or send it to100 lenders for loan consideration, without it negatively impacting their financial health. This enables consumers to shop for credit the same way they shop for anything else. It gives you and lenders a comprehensive financial health profile. It also gives you tools to improve your financial health that you can adjust to fit your life any time.