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Isn’t it ironic how you can have an excellent payment history but poor credit?
Your credit score is one of the most prized possessions in your financial profile, and a low score can be very detrimental to your financial well-being when you need to borrow money. It doesn’t help when you desperately want to improve your score, but are in the dark about how to move forward.
Here are six expenses that will not facilitate your efforts to build your FICO score, the score most commonly used by lenders:
You’d think the opposite would be true because these companies usually require a credit check before they’ll do business with you. It doesn’t matter if you make timely payments each month because the companies don’t report to the three major credit bureaus. However, there are exceptions:
Are you required to provide monthly support to your children or former spouse? The credit bureaus likely don’t know about that either.
However, fall far enough behind and your arrears will be reported to the credit bureaus if a state child support enforcement agency gets involved. Fail to pay, and it can damage your credit score.
Do you make property, state or federal tax payments during the year? If you pay on time, this information won’t be reported either. But if a lien or wage garnishment results because you don’t pay, it will show up on your credit report.
Having a federal tax lien on your credit report is a serious negative item and it could remain on your credit report for seven years after the tax bill is paid, unless you take steps to have it withdrawn.
Paying for a monthly service? Your record of good payments won’t be reported if you’re working with a small business that doesn’t report to the credit bureaus. If you stop paying, the company may simply stop providing the service and write off the delinquent account as a bad debt expense. But if they send the bill to a collection agency, that will hurt your score.
Because premiums are usually paid in advance, health, auto, homeowners and life insurance companies don’t typically report transactions to the credit bureaus either. If you don’t pay, eventually they’ll simply cancel the policy.
Have you arranged a payment plan with your health care provider for the portion of bills not covered by health insurance? The balance and payment activity don’t show up either, unless, of course, you’re delinquent. Says Bankrate:
Your monthly payment to a doctor or hospital will not be reported, but failing to pay will result in the bill being sent to a collection agency. That agency may report the account to your credit bureaus. Some, albeit only a few, hospitals will assign the bill to a collection agency but advise the agency not to report the bill to your credit report. The collection agency will attempt to collect the debt but not create a negative mark on your credit report.
The VantageScore is a direct competitor of FICO, and calculates your alternative credit score using the following factors:
It ranges from 300 to 850, and requires little to no credit history to calculate a score. This is a benefit for those 64 million Americans without a traditional credit score.
FICO also has a special mortgage credit score that reflects timely payment of rent and other obligations.
If you must apply for a loan, find out which credit score the lender is using.
This post originally appeared on Money Talks News.
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