Make Sure You Know the Score When It Comes to Credit
Make Sure You Know the Score When It Comes to Credit
By Jeanne Kelly
Did you know there are different types of credit scores? Truth be told, lenders are only interested in the one called a FICO® score, a method of measuring credit developed by the Fair Issac Corporation. A less-than-optimum FICO score could be costing you thousands of dollars in interest each year, so it’s important to become acquainted with it.
Five factors determine your FICO score:
1. Your payment history makes up 35% of your FICO score. Many of us may think we know our payment history, especially if we pay our creditors on time. But errors often show up in reporting. Settling disputes with creditors, even over false reporting, can take time. So, be sure to keep an eye on your report before you are in need of a loan.
More important, always pay all your minimum balances on time. Recent late payment will hurt your score tremendously. Reported outstanding collections can also cause problems. It’s easy to forget an old cable bill or a $20.00 medical co-pay. Such oversights may make it on to your report, decreasing your score by as much as 100 points.
2. Your revolving balances make up 30% of your FICO score. Whether it’s a home equity loan or a Mastercard account, reaching the highest balance available to you could keep your score low. Keeping balances low will give your score a boost.
3. Your length of credit makes up 15% of your FICO score. Time is on your side. The FICO score gives more points to those who have a long history of credit. If you are new to using credit, it will take some time to achieve the 700 or 800 scores. Try getting on someone else’s credit card account as an authorized user. Their account will go onto your credit report. The older their account, the older your history.
4. Your new credit makes up 10% of your FICO score. When applying for a new loan, having a recently opened credit account on your record can drop you up to 10 points for six months. Never open new accounts before applying for a big purchase, such as a mortgage or auto loan. Only apply for new credit when you are not in need of a big-ticket purchase. This keeps you building a good credit profile.
5. Your types of credit make up 10% of you FICO score. Ceasing to use a variety of credit can lower your score. From auto and boat loans, to credit cards and student loans, the FICO score assesses whether you can handle many different types of accounts.
The bottom line: Always be aware of your credit, and always use your credit in a healthy manner. This will help you obtain loans when you need them.
A copy of your credit report can obtained with no fee @ www.annualcreditreport.com. A copy of your FICO score can be obtained for $ 15.95 @ www.myfico.com.
Jeanne Kelly is the founder of Kelly Group, one of the most legitimate and successful credit consulting companies in the Northeastern United States. She was one of the speakers at WLE’s Business Off-Site at the Turning Stone Resort in Verona, NY. To learn more about Kelly and credit protection in general, visit http://www.kgroupconsulting.com.
