Investment & Financial Articles
Title: How To Boost Your Credit Score
Author: James H. Dimmitt
Article:
Years ago your credit score was a big secret, known only to a
select few such as your mortgage and credit card companies. In
2000, Fair, Isaac Co., the major supplier of credit scoring
software, announced they would begin sharing credit scores, also
known as FICO scores, with consumers.
What is a credit score? A credit score is a tool used by credit
grantors to determine your ability to repay your debts. The
information in your credit report is compared and evaluated
against tens of millions of other consumer credit reports which
gives you a credit score or number ranging from 350 (highest
credit risk) up to 800 (lowest credit risk). A higher score
means you are less likely to make late payments or default on
the credit extended to you. Your credit score will change as the
information in your credit report changes over time.
Following is a short overview of the five major categories of
credit information that are used in determining your credit
score and guidelines for scoring higher.
PAYMENT HISTORY (35 percent)
Paying your current bills on time is the single most important
factor in obtaining a high credit score. This category includes
credit cards like Visa and MasterCard, retail accounts,
installment loans such as those for a car or education, loans
from finance companies, and home mortgages. Also included in
this category are matters of public record such as bankruptcies,
liens, wage garnishments, and collection accounts. The key to a
higher score: Pay your bills on time!
HOW MUCH DEBT YOU CARRY (30 percent)
This category considers the amount of debt you owe on your
various credit accounts. If you've "maxed out" your available
credit, this could indicate that you are overextended
financially and won't be able to make your payments on time or
repay your debts completely. This category also examines how
many of your accounts carry balances and how much money you've
already repaid. Closing accounts with a zero balance does not
generally improve your score in this area. The key to a higher
score: Keep your credit card balances low.
LENGTH OF ESTABLISHED CREDIT (15 percent)
The longer you've had credit accounts the higher you will score
in this area. The age of your oldest account and the average age
of all your accounts are used in determining your score. Old
accounts that have gone unused are also considered. The key to a
higher score: Establish good credit and keep accounts active.
APPLICATIONS FOR NEW CREDIT (10 percent)
Opening multiple credit accounts within a short period of time
represents a greater risk of becoming overextended. Each time
you apply for credit an inquiry is made into your credit history
and these inquiries show up in your credit report. A high number
of credit inquiries will lower your score.
Some inquiries are not considered in your score. These include:
requests by you for your credit report, inquiries from companies
for pre-approved offers or companies that already do business
with you, along with inquiries from potential employers. Some
requests for credit are treated as a single inquiry especially
when you are shopping for the best loan rate. The key to a
higher score: Only apply for and open new credit accounts when
you need them.
YOUR CREDIT MIX (10 percent)
This category examines the types of credit accounts you have and
how many of each. Can a person have too many accounts? Yes and
no. It really depends on whether you have an established credit
history or no credit history at all. The key to a higher score:
Open credit accounts only if you intend to use them.
Don't despair if you have a low score or are just beginning to
establish credit. Your credit score will change for better or
worse depending on how well you understand and use these five
keys to your advantage in planning your financial future.
About the author:
©
2004, http://www.yourfreecreditreportnow.com Author: James H.
Dimmitt James is editor of "TO YOUR CREDIT", a weekly free
newsletter to help you manage your personal finances. Subscribe
to the newsletter by visiting
http://www.yourfreecreditreportnow.com. He is also author of
"
Identity Theft - How to Avoid Becoming the Next Victim!"
available at http://tinyurl.com/bc45
|