There is a lot of confusion regarding credit scores. We've gathered some useful recommendations on how to keep your score looking healthy and strong.
Check out annualcreditreport.com and view a report annually…the first step to financial freedom.
Keep your Credit Score healthy
Here’s what you can do to boost your scores and keep them high:
- Pay your bills on time. Late payments and missed payments can really hurt your score.
- A consumer reporting company can report most accurate negative information for seven years and bankruptcy information for 10 years. So, any mistakes you make now will linger out there for years.
- Even though the late fee on an account does not kick in for a number of days after the due date, not paying when it is due is recorded as a late payment.
- Set up automatic payments and e-mail reminders so that you don’t miss a payment. You can do this with our free internet bill pay.
- Don’t let financial disputes or unpaid bills turn into collections. Resolve issues quickly.
- If you are having difficulty keeping up with your bills, call your creditors and try to work something out.
- If a review of your credit report shows an action of collection, resolve it quickly. If you can demonstrate it is an error, it may be taken off your credit report.
- Keep your credit card balances low. The number that matters for credit score calculations is the balance on your most recent statement.
- Keep in mind the ratio of what you owe to your available credit. If you owe $1000 and you have $10,000 available on all your combined credit cards, it looks better than if you owe $5,000 on an available balance of $10,000. So even if you pay your bill in full every month, you should try not to use more than 30% of your available credit at any given time — and less is even better.
- Don’t cancel older cards thinking it will make you look more credit worthy. This will shift the ratio of what you owe against your available credit.
- Use an old card so it doesn’t get canceled for inactivity. Such an account closure can negatively affect your scores. To keep an account active, use it and pay the balance in full.
- Since the length of your credit history is also important, those longstanding accounts are important to hang on to.
- If you suspect that your personal information has been used to commit fraud or theft, place a fraud alert on your credit reports. Do this by contacting one of the national reporting agencies. They will inform the others of it. Review your credit reports carefully.
- Dispute inaccuracies on your credit reports. Look for serious errors, including accounts that aren’t yours, inaccurate entries and negative items.
Thanks to the FACT Act, we are all allowed one free annual report from each of the three major credit reporting agencies, Experian, TransUnion and Equifax.
Alternating them on a 4-month schedule allows you to keep on top of your history and possible errors.
If you plan to shop for a loan, make all your inquiries within one month’s time.
Too many inquiries by potential lenders affect your score. Your report has a record of all creditors who have asked for your credit history within the past year, and a record of individuals or businesses that have asked for your credit history for employment purposes for the past two years.
One inquiry will generally knock no more than 5 points off your score. The FICO score treats multiple inquiries in a 45-day period as just one inquiry.
Understanding Your FICO® Score
What is a credit score? A credit score is a number that summarizes your credit risk, based on a snapshot of your credit report at a particular point in time. A credit score helps lenders evaluate your credit report and estimate your credit risk.
The most widely used credit scores are FICO scores, the credit scores created by Fair Isaac Corporation. Lenders can buy FICO scores from all three major credit reporting agencies. Lenders use FICO scores to help them make billions of credit decisions every year. Fair Isaac develops FICO scores based solely on information in consumer credit reports maintained at the credit reporting agencies.
Your credit score influences the credit that’s available to you and the terms (interest rate, etc.) that lenders offer you. It’s a vital part of your credit health.
Learn more about your credit score below.
My FICO Score
As a rule, credit scores analyze the credit-related information on your credit report. How they do this varies. Since FICO scores are frequently used, here is how these scores assess what is on your credit report.
1. Your payment history—approximately 35% of a FICO score
Have you paid your credit accounts on time? Late payments, bankruptcies and other negative items can hurt your credit score. But a solid record of on-time payments helps your score.
2. How much you owe—approximately 30% of a FICO score
FICO scores look at the amounts you owe on all your accounts, the number of accounts with balances, and how much of your available credit you are using. The more you owe compared to your credit limit, the lower your score will be.
3. Length of credit history—approximately 15% of a FICO score
A longer credit history will increase your score. However, you can get a high score with a short credit history if the rest of your credit report shows responsible credit management.
4. New credit—approximately 10% of a FICO score
If you have recently applied for or opened new credit accounts, your credit score will weigh this fact against the rest of your credit history. When you apply for credit and a lender checks your credit history, your score may drop a little, usually by less than five points. FICO scores do distinguish between your search for many new credit lines and rate shopping for just one mortgage or auto loan. If you need a loan, do your rate shopping within a focused period of time, such as 30 days, to avoid lowering your score.
5. Other factors—approximately 10% of a FICO score
Several minor factors also can influence your score. For example, having a mix of credit types on your credit report—credit cards, installment loans such as a mortgage or auto loan and personal lines of credit—is normal for people with longer credit histories and can add slightly to their scores.