Service Members Can Begin to Fix Credit After Ordering Free FICO Scores

When someone is serving in the military, there can be a lot of uncertainty that comes with it for both them and their loved ones. Further, when their tours of duty end, they may need to get on the path back to good financial health.

Many military families and individuals know all too well that there can be some financial difficulties that come with service, and these can take some time to correct if they’re not carefully managed throughout one’s tour of duty. Fortunately, one way in which they may be able to do so is with a free credit score, which is available to military members and their spouses from FICO, the company that pioneered credit scoring. With this information, as well as a free credit report available from each of the three major credit bureaus once per year, it may be easier for military families to stay on top of their borrowing situations. Once a military member is interested in finding out their credit standing, it can be relatively simple to order copies of one’s credit score and reports, and doing so will likely provide crucial insight into just what their situation is.

However, in some cases, there may be a little bit of confusion as to what can actually be gleaned from these documents.

What a credit score will show

In general, a credit score isn’t necessarily going to tell a borrower much besides where they actually stand, but that doesn’t mean the information isn’t useful. In short, a credit score takes into account all aspects of a person’s credit situation and, using a specific formula, condenses it down to one three-digit number, and the higher that number, the better the rating. Scores can range anywhere from 300 to 850 on the FICO scale, and the vast majority of borrowers have ratings in the relatively narrow range between about 650 and 800.

So what makes up a credit score? The biggest portion — 35 percent — is simply the ability of a borrower to make consistent on-time payments. The more they make in a row, the better off they will be, but even one misstep such as a missed deadline can cut this portion of a score considerably.

Another 30 percent is the amount of available credit being used. Lenders don’t like to see borrowers using more than 30 percent or so of their total available credit limits, and anything over that mark will erode this portion of one’s rating. Keeping debts under control and as small as possible, therefore, is of the utmost importance.

The next-largest portion of a score drops to 15 percent, and is comprised of the average length of time a borrower has had all their various accounts. As with payment history, the longer the average account age, the better the rating. Lenders like to see this information because it shows how long a borrower can be counted on to use credit responsibly.

The final 20 percent of one’s score is made up of two factors accounting for 10 percent each: credit mix, and credit inquiries. The former essentially means the number of different account types, such as credit cards, mortgages, auto loans, student loans, and so forth, a borrower has in their name, and again, more is better. Credit inquiries, meanwhile, means the number of times a consumer has sought new lines of credit in the past few months. But here, more is actually worse, because lenders believe that constantly applying for new accounts, a borrower shows they may be having cash flow problems.

Having a higher credit score can give borrowers access not only to more credit if they want it, but also better rates and fees on the accounts they seek.

What a credit report will show

Once a military member or their spouse knows their credit score, it might be a good idea to look at their credit reports, because such a document will give them more insight into what the score is based on. It shows all accounts listed in one’s name, as well as payment history on them and whether they’re currently considered up-to-date. Having this data can be important because it will allow a borrower to compare what’s listed on their report with the accounts they have in real life, because unfortunately there can sometimes be discrepancies between the two.

Borrowers should always take the time to check over their credit reports closely and try to determine if there are any unfair markings listed on the document. These can have a significant negative impact on one’s credit score, and severely endanger their ability to borrow at the affordable rates they may deserve. Fortunately, if any such entries are discovered, it may be possible to clear up the issue by working with a credit repair law firm, which can return a borrower’s standing to where it should be.

Posted in Credit Repair
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