Here are some questions to consider before applying for credit or insurance or even before filling out a job application.
Does a credit card company report credit limits?
Credit limits are used to calculate a part of your credit score. A while back Capital One and a few other credit card companies did not report your credit limit and in order to make a calculation a card holders high balance is used instead. This has been greatly curtailed but no-limit credit cards and charge cards(balance paid in full monthly) still continue the practice.
The example below will help illustrate this calculation, also known as the revolving debt utilization calculation. The idea is to have a low utilization percentage. This means you only use a small amount of the total available credit.
Credit Limit – $12,000
High Balance – $1,200
Current Balance – $1,000
If the credit limit is reported the calculation will show 8.34% utilization rate ($1,000/$12,000). Very nice! If the credit limit is not reported then the utilization rate will be 83.34% ($1,000/$1,200). Very poor. The rate is taken for each credit card individually and then all the cards combined to calculate the overall score.
Is a credit report reviewed along with an employment application?
In most states employers are allowed to use a credit report as part of the employment application process. However, they are required to get your permission first, so you might want to ask if that is part of their process.
Although FICO scores are not used by employers the credit report of a sub-prime FICO (below 620) will not look very good. If you fall into this category (over one third of Americans fall below 620) knowing your score in advance will allow you to explain the situation. This certainly does not mean you are not a hard and dedicated worker, but an employer may want some clarification. Find out as soon as you can so you will have some time to correct these problems.
Do you use a specific credit bureau and what FICO version are you using?
When applying for loans or insurance coverage it could be helpful to know which credit bureau will be used. The score will be pulled from one of the three (Equifax, TransUnion or Experian) and they all calculate their scores differently so why not go with your best score if possible. Not only will you be more likely to be accepted but you will also get better terms(lower rates and fees).
Car dealers for instance, want to sell cars. As many as possible. Financing is a huge part of their business and they are very eager to find a loan to fit as many customers as possible. They will finance higher risk customers but those customers will pay higher fees, bigger down payments and very high interest rates. They might be willing to tell you not only which credit bureau they use but what the minimum score is to qualify. Find the terms that are most beneficial for you. They want to sell cars!
What’s the lowest FICO score to qualify for the best rate?
Anyone who runs a credit report on you is, by law, required to give the score (at no charge) to you if they decline you. Transparency is slowly but surely creeping into the industry. If your credit is border line, you will eventually be able figure out the minimum requirements.
The next time you’re filling out an application that requires a credit check, ask a few questions first. It could save you some time, embarrassment and most importantly money. You’ll also show that you’re an educated shopper.