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Business // Thinking Smart
David S. Chang

The Other Ways Lenders Judge You

Your credit score is one of the most important numbers in your financial life. It plays a huge role in buying a house, a car, getting loans, credit cards and even, in some cases, a job! Your credit score is primarily made up of paying bills on time, credit history, credit mix, recent inquiries and the debt-to-income ratio. However, there are little-known ways that lenders grade you in addition to your credit score.

Here are the extra ways you are judged and what to do about it:

* Behavior Score. Lenders don’t just look at how much you spend, but also where and when you spend. According to Adrian Nazari, CEO of Credit Sesame, “If you normally shop at high-end stores and regularly pay off your card, and then suddenly start shopping at discount stores and carrying a balance, the lender could use this behavior data as an indicator that you have become higher risk and could take steps to minimize its exposure.

Alternatively, if your behavior data indicates you are a good risk but you aren’t generating a profit, an issuer might determine how to incentivize spending.” Based on your behavior, lenders can increase or lower your credit limit based on behavior triggers such as long-term credit activity, late payments and reaching your limit.

* Attrition Score. This also is known as the “Wandering Eye” score, where lenders determine how likely you are to switch to a competitor. If it is high, lenders may give incentives and perks to keep you committed to them. Giving the impression that you may use another lender may make them work harder for your business. Call them and ask them for lower rates, a higher limit or other perks they can offer. Nazari adds: “Another way to let them know they need to court you again is to simply stop using your card.”

* Collection Score. When debt is sent to a collection agency, not only does your credit score drop, but you probably will be harassed nonstop to pay off the debt. Your collection score is determined by how likely you are to pay. Creditors may not aggressively pursue those with a low score since it will not want to waste valuable resources to go after debt that is unlikely to be paid off. If you are behind, work with the creditor so it doesn’t go to collections. If it does, try to negotiate with the agency, and if it is overly aggressive, let the Federal Trade Commission know.

* Bankruptcy Score. This is an algorithm that is used to predict how likely you are to go bankrupt. When you get a new credit card or loan, lenders will pull your credit score to evaluate and minimize their risk in advance.

The key thing is to proactively monitor your credit score. Visit artofthinkingsmart.com to learn ways to boost your credit score.

It is important to check your score on a regular basis! Creditsesame.com and creditkarma.com offer free credit scores and reports.

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