When people are looking to improve their credit scores, one of the first things they will do is search online for tips and tricks to help them in their quest. And often, the ideas they find can be quite helpful in terms of providing a pathway to an improved credit background. But this might not always be the case for those who have limited or non-existent credit backgrounds in their names, so it's important for these people to know both the basics, and how they can establish a borrowing history of their own.
There are a number of basic ideas behind having a good credit score that everyone should know if they want to either build such a rating, or maintain one once they've already gotten there. These include paying all bills on time and in full each month, avoiding taking on too much debt, keeping a healthy mix of credit types so that they're not too dependent on any one kind of loan, and demonstrating the ability to handle accounts over long periods of time.
Why is that important?
These four ideas, as well as how much new credit a person has at any one time, are the big tenets that go into defining a traditional credit score. The longer and better a person handles his or her accounts, the better their score is going to be. But beyond that, "paying bills on time" and "keeping debt down" is a good idea just in terms of having healthy finances, let alone having a healthy credit rating.
Indeed, with minimal debts and a good rating overall, a person is likely to have a strong financial background overall, but that in and of itself is likely to elude the roughly 40 million Americans who are so-called "slim-profile" consumers. That basically means that they have so little experience with credit, or simply none at all, that they cannot be "scored" under traditional credit rating models.
So what does that mean?
And again, the ability to responsibly manage credit doesn't have much of an impact on a person who can't get credit in the first place. So how can those who are just starting out get into the borrowing ecosystem in the first place? Some experts recommend deliberately taking on costly accounts and managing them wisely, but this can be financially dangerous for a number of reasons.
Fortunately, there is a better way. Consumers are able to self-report non-credit payment data - that is, monthly payments of bills for rent, utilities, cable, cellphone service, and so on - to alternative credit scoring companies such as PRBC. These ratings examine not just credit history, but all monthly payment information, to paint a more complete picture of a person's overall financial health. That, in turn, can help to unlock credit opportunities they would not have been able to obtain by relying on traditional credit scoring models.
Moreover, if a consumer presents self-reported alternative credit data to a company that usually uses traditional scores and histories exclusively, the law states the new information must be considered in the same way.