As a follow up to the July 31st post about Credit Score Tips, we wanted to bring you five more valuable tips. Remember, it’s never too early to start thinking about ways you can repair and improve your credit score.
Credit Tip #6
Know how credit score is calculated. The breakdown is as follows:
1) Payment history: your track record. (35%)
2) Amounts that you owe: how much is too much? (30%)
3) Length of your credit history: how established is it? (15%)
4) New credit: are you taking on more debt? (10%)
5) Types of credit in use: is it a “healthy” mix? (10%)
Focus on what’s most important when it comes time to improve it. Understanding how your score is determined will help you understand what to focus on for maximum improvement.
Credit Tip #7
FICO scoring takes into account both the oldest credit account and the average age of all open accounts. Thus, length of credit history is very important and it makes sense to keep accounts that are in good standing open. If you’ve already closed some old accounts, some creditors will permit you to re-open them under the same account number (which is important.) Give the creditor a call and see if they will re-open a card that you have closed that is in good standing. It MUST be the same account number so that the history will be retained. It’s worth a shot!
Credit tip #8
Some “experts” teach that having no credit cards is the way to be a good financial steward. Since most will be unable to pay cash for their home, cars, etc., this is TERRIBLE advice. In order to MAXIMIZE your credit score and GENUINELY be a good steward of your finances, use credit to your advantage. Make purchases on credit cards that you would have paid cash for and then quickly pay them off online. Never carry a balance on your credit cards higher than 40% of the overall card limit/ (Ideally, never carry more than 20%.) If you want to be “debt free,” that is an EXCELLENT goal – but continue to utilize credit RESPONSIBLY to maximize your score and save money on things like home insurance, car insurance and of course on most loans. A good credit score means saving money. THAT is smart finance!
Credit Tip #9
Often, people assume that paying an old collection account will improve their credit score. While it can keep the account from being sold and re-reported (good), a paid credit collection account has ZERO impact on improving your score (bad) and will result in the date of last activity being updated (Worse) and the 7-year clock on how long the item is reported restarted all over again (REALLY BAD!). If at all possible, negotiate to have the item REMOVED from your credit history and get it in writing BEFORE making payment.
Credit Tip #10
Utilize an online credit monitoring service to keep you updated on what’s going on with your credit. A consumer score is different from a financial score, so the scores you see online will often be different than a lenders scores. Usually, they are similar and can at least give you a ballpark idea of where you are.