Your Credit Score
One of your most important assets could be your credit score. It could also be your biggest liability. That's because it can determine your eligibility for credit, the interest rate you pay to finance a new practice, car or home, and may even affect your ability to get hired as an associate. More employers – including hiring dentists – are checking the credit scores of potential employees.
Because of the credit score's potential impact on your life, it is important you understand how it works and steps you can take to build and maintain a sound score.
A person's credit score, typically a number between 300 and 850, reflects the credit history detailed by a person's credit report. It offers a snapshot of a consumer's credit risk and rates the likelihood that the consumer will repay debts. It includes information about loans and credit amounts, court documents, and financial actions such as bankruptcies, liens or foreclosures.
There are three credit bureaus, Experian, EquiFax, and TransUnion. All three will assign a score based on the information that has been reported to them from various creditors. So, what's in a score? The primary components of the score are:
- Payment History
- Amounts Owed
- Length of Credit History
- New Credit
- Types of Credit Used
The most important thing to do to build and maintain a healthy score is to pay your bills on time as agreed in the lending contract and not abuse revolving credit (such as credit cards).
If your credit score is lower than it should be, you'll want to do what you can to improve it. Here are some tips from www.myfico.com:
- Pay your bills in full and on time.
- If you have missed payments, get current and stay current.
- If you are having trouble making ends meet, contact your creditors to work out a repayment plan or see a legitimate credit counselor.
- Keep balances low on credit cards and other "revolving credit."
- Pay off debt rather than moving it around.
- Don't close unused credit cards as a short-term strategy to raise your score.
- Don't open a number of new credit cards that you don't need, just to increase your available credit.
- If you have been managing credit for a short time, don't open a lot of new accounts too rapidly.
- Focus your shopping for credit within a short time-frame.
- Re-establish credit if you've had problems.
- Open only credit you need.
A note about student loans: Because the credit score considers the types of credit used, student loans are factored into the score differently than consumer debt, such as credit cards and department-store revolving credit. Make repaying your student loan debt a priority once your practice is established.
It is good practice to check your credit score at least annually. You can obtain a free copy of your credit report by going to www.annualcreditreport.com. This site is sponsored by the three main credit reporting agencies.
Your annual credit report will be only that ... your report. Your credit scores will not be disclosed. In order to learn your score, you will need to pay a fee to the reporting agency or FICO. When accessing your credit report through www.annualcreditreport.com, you will be given the option to buy your score from each of the three agencies and the cost is around $8. It is a good idea to pay and get your score so you know where you stand. Although the report will give you all the information factoring into your score, there is no way to determine the impact the information will have.
Be careful of so-called "free" credit report services; there may be a catch.
When you are shopping for commercial credit, incorporate a recent credit report and score with your business plan. That will give lenders the information they will want before they expend time looking further into your plan. If the credit information is not available, the lender will have you apply for credit so they can pull a score on you right away. This is an inquiry that will appear on your report, so try to avoid it until you are more confident you will be working with a lender.
Look closely at your report, not just your score. Review the report to see if there are any errors. If there are errors, you will need to get the information corrected. This is a time-consuming process so the sooner you start, the better.