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How To Boost Your Credit Score
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, James H. Dimmitt, http://www.yourfreecreditreportnow.com
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
jimdim815@aol.com
MORE RESOURCES:
EnerJex completes $50M credit facilityBizjournals.com, NC - 15 hours agoIn a release Tuesday, Overland Park-based EnerJex (OTCBB: EJXR) said it will use proceeds from the facility to redeem $6.3 million of outstanding 10 percent ... |
Credit - Google News
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