Wednesday, December 13

How to Fix And Maintain Your Credit Score

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Let’s face it.  Your credit score is one of the more important considerations in your life.  It follows you everywhere—from your job to your home.  It is an indication of your [financial]trustworthiness.  So your credit (FICO) score is something you will really want to take care of.  What if you’ve already screwed up your score? Well, you’re not alone.  I’ve been there.  And so have many others.   It took a lot of research and action in order to repair my credit.  But I did it…and it didn’t take too long.  If you want to repair, increase, or maintain your credit score, please read this guide as it contains all the main ingredients of a good credit score.

In terms of your FICO score, it is divided as such:

35% is your payment history

30% is your amount owed (or your Debt-To-Credit) ratio

15% is the length of your credit history

10% is the amount of new credit you have

10% is the types of credit you own

With those components in mind, here are the big DOS and DONTS of your credit.

DO pay your bills on time.  This is by far the most important consideration of your credit score.  One late item on your credit report can drag down your score significantly.  However, there is a caveat to the rule.  You have to be past due AT LEAST 30 days in order for the item to show up on your credit report, and consequently affect your credit score. That is because the credit bureaus are only concerned with three types of past dues; 30 days past due, 60 days past due, and 90+ days past due.  The 90+ day past due is obviously the most detrimental.  So being a couple of days late may cause your interest rate to hike with your creditor.  But let’s get rid of the common misconception—being a couple of days late WILL NOT affect your credit score. If you find yourself being late less than 30 days, call your creditor.  If you are in good standing with them, they will most likely waive the late fee.  But if you are past due 30+ days,it is time to write to the credit bureaus (Experian, Equifax, Transunion). For more information on writing to credit bureaus, visit this article.

DO keep your Debt-To-Credit (DTC) ratio ideally under 35%.  I hear some say that keeping it below 50% is okay.  But I’ve seen my credit score dip when I charge up to 45% of my credit ratio.  But as long as I keep my DTC ratio around the 30ish percentile, my credit score doesn’t move much.

DO vary your types of debt.  It helps your credit score a bit diversify your debt.  Having a mortgage, a student loan, and some credit card debt is a lot better than $20,000 of (only) credit card debt.

DO check your credit often.  I would sign up for a credit monitoring service.  For around $10 a month, they can monitor your credit report for any sudden changes.  They also give you a monthly FAKO score (Fake Fico score).  Granted, the score they give you isn’t completely accurate, but the report offers you an overview of your credit profile and alerts you of any sudden changes to your credit report.  Identity theft is the fastest-growing crime in America right now, so paying $10 a month to have something as important as your credit score monitored isn’t such a bad deal to me.  If you want your real FICO score, I suggest you go to myFICO to get it.  They have several different credit monitoring options.  I have bought all my credit reports through them and their credit analyzer is pretty decent.

DON’T cancel your (oldest) credit cards.  I advise against cancelling any credit cards—but if you have to, DO NOT cancel your oldest ones.  It will affect your credit score inversely as your credit history is 15% of your FICO score.  Because when you are cancelling your credit cards, you are effectively cancelling the history married with that card.  So if you HAVE to, cancel your newer cards.  Furthermore, cancelling your account drops your DTC ratio.  For instance, say you had a total of $5,000 of debt on 5 cards, totally $15,000 in credit.  That’s a 33% debt-to-credit ratio.  Let’s say now you want to cancel a card that has a $5,000 credit limit on it, of which you have a zero balance on.  Well now, instead of having a 33% DTC ratio, you now have a 50% DTC ratio—which will lower your score.

DON’T shop around for credit too often.  If you are shopping around for credit, do it all within one month.  Having multiple inquiries on your credit report negatively affects your credit score.  So if you’ve been shopping around for credit for half of the year, that’s going to be several different hits against your credit report.  But if you do ALL your credit shopping in one month— no matter how many different types of credit cards or mortgage loans you have been trying to qualify for—it will only count as ONE hit on your credit report.  Having one hit on your credit report will not affect your score much, if at all.  Keep in mind that obtaining new credit is a double-edged sword. It helps lower your DTC ratio but it also leaves a hard inquiry on your credit report.

DON’T pay off collection accounts (right before applying for a loan).  If it is already on your credit report, there is no need to pay for it.  In fact, paying for it may be detrimental to your credit score as it renews the item on your credit report, effectively renewing your collection item.  This is ESPECIALLY important to remember before applying for a big loan or mortgage.   For more information on paying off delinquent accounts, go to this site

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