Building the right balance of credit is sort of like creating the perfect fantasy baseball team. It takes strategy, research, persistence and sometimes patience as you strategically try to raise your dismal credit score. Not to mention that if you want to get to the playoffs -- e.g., get approved for a mortgage someday -- you'll have to make smart decisions all season long.
By applying those analytical skills to your credit profile, you'll reach the credit score big leagues in no time. Ready to play? Here are five fantasy baseball strategies that can help improve your credit.
Know the rankings
Savvy fantasy baseballers read player rankings before draft day in order to make the best picks possible. The same deal goes with knowing where you rank with your creditors before you apply for a loan or mortgage, so you have time to develop a plan of action for raising your score.
Winning strategy: First, understand what credit scores really are, and know where you stand, says Maxine Sweet, vice president of public education at Experian, one of the three major credit-reporting agencies. "People do have the misperception that there's one score, but the way scoring really works is that the lender selects which model they want to use," says Sweet.
Among the more popular models are FICO and VantageScore. "The FICO scores have been adopted by lenders over the years -- something like nine out of the top 10 largest banks in the country use FICO," says Barry Paperno, consumer affairs manager of myFICO.com.
More recently, VantageScore was developed as a joint venture of the three nationwide credit-reporting agencies, Experian, Equifax and TransUnion, to be a generic credit-scoring model. Regardless of which scores a potential lender uses, the smart play is to head to AnnualCreditReport.com once per year to request your free credit report from each of the three credit bureaus, says Sweet, to assess your stats. You can order your free credit reports all at once or one at a time during a 12-month period. Credit scores are based on the information in your credit report.
Monitor your team
You're bound to lose points if you forget to replace a player who's injured. Similarly, missing payments or letting credit card balances grow to out-of-control proportions can hurt your score. Winning strategy: "The factor that has the most impact on your credit score is if you made all of your payments on time," says Sweet.
Batting second in the lineup is utilization. "Utilization is how much you owe compared to how much you could owe. The logic for that is the consumers who charge to the maximum are consistently those who show up as higher risk," says Sweet. She recommends trying to keep your accounts below 30% utilization. So if you have a $1,000 credit limit, stay below a $300 balance.
"One of the things to understand about scoring is that the importance of any single piece of information is going to vary according to the other information in your credit report," says Paperno. For example, the impact of a late payment can be more detrimental for someone who has a short credit history or limited credit experience as opposed to someone who has used credit for years.
Be wary of trade offers
If someone is looking to trade his or her best player to you, you'll think about why it might be too good to be true. Likewise, saving 15% off on a day's purchase just for applying for a retail credit card has its own set of caveats.
Winning strategy: Just as you might sleep on a trade offer before you hand off a player, think twice before signing up for new credit accounts. "Don't apply for other credit in the three- to six-month period before you're going to apply for a car loan or a mortgage," says Sweet. That's because if your recent credit history includes opening or applying for new lines of credit, it can cause your score to take a hit. And the lower the score, the higher the interest rate will be on that loan you're seeking, she says.
"As a general statement, opening up multiple new accounts ... is interpreted as increasing risk, and the score might be impacted," says Barrett Burns, president and CEO of VantageScore Solutions.
Don't give up on your team after a loss
Just because your team is performing poorly doesn't mean you should walk away. By the same token, you should think twice before you quit your credit habit cold turkey.
Winning strategy: Although you may have the urge to cut up your credit cards if a balance or two has gotten out of control, giving up on credit altogether will not necessarily help your score. "If you stop, you've frozen your history in a negative state. You're not adding anything positive," says Sweet. On the other hand, she says, if you keep using your credit minimally, pay on time and work to reduce your balance, you can rehabilitate your scores over time.
In fact, your score is always in a state of flux and will change as often as the information in your credit report does, similar to how a player's batting average changes with every plate appearance.
"The score is not a piece of data that is filed away and then pulled up when requested," says Paperno. "It's calculated at the time that it's requested using the most up-to-date credit info that's available."
For questions, go to the commissioner
Every league has a person who's in charge to settle any disputes. When it comes to discrepancies in your credit score, you also need to know who to turn to so you can correct any errors.
Winning strategy: Once you get your credit reports, review them for accuracy, says Sweet. If you find any errors, in the majority of cases, disputing them online via the credit reporting bureau's website is the way to go, she says.
When filing a dispute, do your part to speed up the process. "Be very specific -- don't just say, 'It's wrong,'" says Sweet. It can then take up to 30 or 45 days to see a resolution to a dispute, but "most of the time it doesn't take that long."
What's even more convenient is that any corrections will automatically get updated on all three credit bureaus if you go through one of the credit reporting companies.