Posts from — January 2009

It is difficult to learn how to increase your credit score until you know how it is calculated.  Your FICO is basically comprised of the following factors …

35% - Your payment history.

Any bills that involve borrowing, such as a mortgages, loans, car loans, credit cards, or home equity loans, are tracked to make sure you pay in a timely manner.  But be careful with other bills like cell phone bills, medical bills, or utility bills as well.  They aren’t regularly tracked but if you pay any of these too late and it goes to collections you may see them on your credit report as well.  Student loans also show up on your credit report.  Make sure you are paying in a timely manner and if you can’t and go into forbearance this will sometimes appear as a negative as well.

30% - The amount you currently owe

This is the amount currently owed on accounts and how it compares to your credit limits.  FICO likes to see that your balances are low or nothing at all which means that you are not spending more than you can handle.  However, having too much available credit is sometimes a negative as well.

15% - The length of your credit history.

FICO likes to see that you have long standing accounts, which means you are less likely to be a credit risk.

10% - How many newly opened accounts you have.

FICO looks as a person with newly opened accounts as riskier.  Because, really, why would you open new accounts if you weren’t planning on using them.

10% - How many credit inquiries you have.

Inquiries into your credit report are logged as they occur.  This would typically happen when you are shopping for loans, or trying to open a new account.  FICO interprets the higher number of inquires as to say you are shopping for more credit and is flagged as making you higher risk.

The great thing is that when you get your credit report, all three credit reporting agencies;  Equifax, Experion, and Trans Union will list any potentially negative items dragging down your credit score first on your report .  This way you don’t have to translate it for yourself.  They will list any late payments or collections items and they give a summary of why points were deducted, such as not having a long enough credit history.  The lesson here is that you will never know this stuff if you don’t get a copy of your credit report and score so go get it here now.

I am not sure about your workplace but mine finally feels back to normal!  Everyone is back from vacation refreshed, and things are back in full swing.  It’s oddly comforting, despite the fact that I would rather still be on vacation.

I got some very good news for the new year.  No, it is not that I got my well deserved but overdue raise at work (I wish)… I found out my FICO score went up over 50 points.  It may not seem like a big achievement to most people but I have learned the hard way how important it is to have a strong credit score and my hard work is finally paying off.  Your credit score is how the world judges your financial stability and when you are marked with “needs improvement” your goals, especially in this economy, are going to get harder and harder to reach.

Think you aren’t affected by a lower score?  Your score is checked whenever you buy a car, buy a house, apply for life insurance, open a credit card, get a cell phone, even apply for a job a lot of times.  For those of us with not-so-spotless credit records (mine was courtesy of the an obscene amount of medical bills when I had no health insurance) these blemishes represent higher interest rates, which can equal a lot of money or even cost you the ability to get a loan at all .

Let’s put it this way, in the Dec 08 those who wanted to buy a house and had a credit score in the top 33 percent were paying  6% for a $300,000 mortgage.  The average borrower would pay at least 7%.  That extra 1 % in interest works out to $50,000 difference in interest over a 30 year loan, paid at the front end.  Most people don’t really notice how the lower score translates into dollars … a lot more dollars.  Since I want to buy a new house in the next three years my number one goal is to get my score as high as possible, because bottom line is, it will cost me a lot more money if I don’t or I wont be able to get a loan at all even.

While any score above 750 is acceptable, the best loans go to those above 780 (for the FICO illiterate the scale is from 300 to 850). Good news is that you can get your credit report absolutely free every six months from all three major credit reporting agencies; Experion, Equifax and Trans Union (try this website).  Bad news is that your credit score is not free (usually $7 - $10 per company), but is totally worth the money!  I didn’t know when I first started tracking my score was that all three companies can have very significant differences in what they report, so get reports and scores from all three agencies.   While Trans Union is honoring me with an outstanding score, over 750, Equifax is still only giving me a 695.  Equifax is deducting for one late payment on a credit card in 2003 that I don’t even remember!  This is a good example of why it is so important to make sure every bill is on time and that you follow your credit report closely to catch errors.

So make your New Years Resolution to get your credit report and your credit score (all three!).  It is important to know where you stand, especially if you plan to get a loan, buy insurance or apply for jobs in the next 7 years!

For those who are making this resolution or maybe want to improve your credit score I will be following up with more tips and info about your credit report and score so stay tuned!