Just about at every turn there is an article or some explanation about the dynamics of credit scores and how they affect you; how you can improve them; repair them; and what not to do to increase them in the first place. When I see such articles, my first impulse is to pass it by writing it off to, “I’ve read that and know all about it”. The truth is, no matter how many times I run in to the subject, I always get to the bargaining table face-to-face with the person that’s going to determine my fate stating, “huh? I have what? You can’t grant me how much?”. By this time, it’s too late and we go running back to Google trying to figure out where we went wrong. Well, here’s yet another write-up of behavior you should avoid in order to keep that score in the median range of 710 but preferably higher. Scores run between 300 – 850 in case you were curious.
The Real Truth about Your Credit Score
Did you know:
- Payment history makes up 35% of your credit score? Penalty: Subtract 200 points for 3 or more occurrences of missed due dates.
- Charging up to your credit limit sabotages your credit score? In fact, authorities say that you should only use 10% of your available credit. For instance, if your credit limit is $10,000, you should only charge up to $1000. In other words, don’t be greedy. Penalty: Subtract 100 points.
- Hard credit inquiries count? If a creditor asks about your credit for the purchase of approving a loan, this is considered a hard inquiry. While not so bad, you want to limit those and not apply for several accounts within a few months. Penalty: Subtract up to 40 points for several occurrences/inquiries in a short time period.
- That closing old accounts could be bad? Old accounts with high limits but low balances shows you are a good credit risk so try not to close them. You might charge on them and pay them right off to keep them from closing automatically. Penalty: Subtract 100 points for not showing that you know how to resist temptation.
Least of your worries:
- Soft Inquiries. These are inquiries you make yourself or a company makes that is not related to a lending source such as a utility company. Your score will not be affected.
- Installment Loan Searches. Surprisingly there is a level of tolerance when you are out looking for a house, home-equity loan or car loan (as I’m about to do). FICO knows that several inquiries will need to be made; however, you should make sure you don’t drag things out. All of those requests will be combined and looked at as one inquiry. It is suggested that you wrap it up within a 45-day period.
With the FICO score being so important to your credit health, you should make sure you always know your score. Some credit unions offer regular monthly credit score updates including mine over at DCU Federal Credit Union. If not, CreditSesame is a free personal finance credit and debt management tool with no credit card required or trial period.
Do you know your credit score? What service to do you use? Is it FREE?
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<This post was inspired by Real Simple Magazine, 8/2011
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