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A Credit 101 Halloween edition

I can vividly remember one specific Halloween day, I was riding my bike with my friends on the street in front of my house.  I was in my early teens and as always, my competitive nature got the best of me as a race broke out.  Just as I reached my top speed and inched closer to a victory, suddenly my chain snaps and gets caught on the pedal. I flew forward and landed face first onto the paved street. I ran inside my house with a rather large cut under my right eye and at first, with it being Halloween, my parents think it’s just a prank (it would be the kind of thing I would do back then).

For years, this left a scar under my eye. It was a constant reminder of that one brief moment, that lack of judgement, that slight mishap that caused so much pain to me.  The pain seemed to last for weeks but the scar lasted for years.  A constant reminder to myself, a cautionary tale, if you will, of how everything can be going one moment and in a minute, everything changes.

Like physical scars your credit report can get what I am going to start calling “Credit Scars”.  Just like younger me, playing on my bike with my friends, everything may be going great and you’re paying all your bills and suddenly something happens and you begin to feel the instant pain of a collection or a missed payment. These leave scars on your credit report that can last for years and greatly affect many aspects of your life.  Your credit report is made up of a few main criteria; your payment history, capacity, mix of credit, and length of credit.  Most people think payment history is all that makes up the score, but in reality it’s only about 35%. The next biggest factor that most people don’t even think about is capacity, or how much available credit you have in case of emergency. For instance, as your credit cards get closer to being maxed out this will cause your score to drop, as you pay down your revolving debt your score should continue to rise.  Your capacity is about another 30% of your entire score.  Length of credit or how long you have had debt is also a major factor.  Getting new debt may cause your score to drop initially depending on the size of the debt because there is no payment history on this yet.  For instance, a brand new mortgage is a very big responsibility and if you have never had one before your score may drop because they want to see that you can manage this new debt along with your current ones.

Sometimes having these scars on your credit is due to circumstances outside your control, like when the chain on my bike broke apart. You could be faced with a situation like losing your job and not know how you will pay any of your bills let alone feed your family. Other times you may have just forgotten to pay a bill only to find the check you wrote in the kitchen drawer a month later. Another credit scar is born and your credit score takes the penalty.

Working at Day Air I get to have conversations with many different types of people and have heard many other stories about credit catastrophes, and one of the biggest I hear is just how many people were never taught about credit by their parents or school. “I made a lot of mistakes when I was younger” or “I just didn’t know how to budget” or even a major life event that they had to struggle to get through, but it’s all in the past now and you have many scars and reminders of the mistakes you have made.

The good news is that like with physical scars, they tend to fade.  There is light at the end of the tunnel and your past mistakes can ultimately be cleared up like that bad scar I once had on my face.  Your credit scars will also fade.  In fact, collections, missed payments and other derogatory credit issues will become less and less impactful each year and will eventually fall off your credit report.  The most recent two years is the most important to your current credit score.

So if you are worried about the scars that you may have on your credit report or if you’re not sure what you can do to help heal your credit score, come in to a Day Air Credit Union Branch for a FREE Credit Score Enhancement. A Day Air representative can help you figure out how to give first aid to your credit, or continue to build your score so you can save money on interest rates on loans.


Daniel Koons

Centerville Branch Manager