[EDITOR’S NOTE – This month’s column comes from Regional Credit Administrator Lisa Storm of AgGeorgia Farm Credit. We welcome your questions about financial matters, business or personal – just send them here and look for the answers or request a private reply.]
In modern agriculture, the ability to obtain financing is critical in order to keep the farm operation going, whether through capital needs for inputs, equipment or land. Your credit score can have impact beyond just approval or denial.
Depending on the practices of your preferred lender, a higher credit score could mean preferential fees and rates. Credit scores are calculated differently by each of the three main credit bureaus: Equifax, TransUnion and Experian. While they are different, there are many similarities.
So, what constitutes a good credit score? Typically, credit scores range from 300 – 850 regardless of the credit bureau providing the score. Each of the three bureaus calculates scores differently, so don’t be alarmed if your lender doesn’t have the exact number you do.
The average credit score is around 700. Excellent credit is considered to be over 800, whereas poor credit is considered to be anything under 600. So how do you improve your credit score?
First, be an informed consumer. Know what your credit score is and know what is in your report. Each of the three main credit bureaus offers all consumers a free copy of their credit report annually. Request a copy of your report directly from the bureau and check it for any incorrect information. A key to maintaining and improving a credit score is to know what is in your credit report. After all, you can’t work on improving it if you don’t know what is there.
In ag finance courses for young farmers, a common question from participants is, “What shows up in a credit report?” Aside from open debts that are reported by lenders and the payment history associated with those debts, there is a wealth of other information reported. Public records like tax liens are reported.
Many consumers are unaware that accounts such as utilities, taxes and medical accounts that are sent to collection companies are also reported on a credit report. The report also discloses a history of credit inquiries for the individual. Each time a credit report is pulled, it is documented and becomes a part of the report. When you check your report, work to correct anything that is not accurate.
There are several things you can do to improve your credit score. First and most important, pay your bills on time, every time. Credit reports show the number of times and dates of when payments are 30, 60, 90 and 90+ days past due. If you have an account with late payments, get it paid current, and keep it paid current. While you cannot make the older late payments go away, you can establish a history of timely payment starting now.
Keep Balances Low — At Or Below 50% Of Limits
Second, keep balances low on revolving credit accounts. Work to keep balances on revolving accounts at or below 50 percent of the credit limit. Also, avoid opening new credit accounts unless it is actually needed. While the short term offers of immediate discounts may be enticing, take a moment to weigh whether or not it is worth the impact to your credit score.
If you’ve had problems with your credit in the past, work to reestablish your credit now by opening new accounts responsibly. Keep these paid in a timely manner, and this should help improve your credit score over the long term. Be prepared to discuss past issues reflected on your credit report with your lender.
If you are shopping for a large purchase that will be financed, such as a house or a vehicle, do this in a short time period. When shopping for rates on a large purchase, multiple inquiries from similar creditors in a short time frame will not have as much of a negative impact on your score as if you apply for credit over several weeks with multiple lenders. It is worth the time to gather your financial information and shop for rates in a short timeframe.
Finally, have open and honest discussions with your lender regarding your credit. This will not have any impact on your credit score, but will go a long way in establishing a long term relationship with your lender.
AgGeorgia Farm Credit is part of the nationwide Farm Credit System. To find the Farm Credit nearest you, visit FarmCredit.com.