Credit scores, also know as FICO scores, are generally very mysterious things because we really don’t know how it’s calculated, much less how to change it. Unfortunately that mystifying number controls much of our financial life.
Credit history, and inevitably the credit score, impacts everything from loan interest rates to required deposits on new utility accounts. Not to mention most employers use it as a determining factor during the hiring process. So if our score is so important, why aren’t we allowed to know what it is?
Credit reporting agencies (Experian, Equifax and TransUnion to name a few) don’t just allow financial institutions to view your report and score, they charge them a fee, and do the same to you. At www.annualcreditreport.com every consumer can see a free copy of their credit report once a year, but the credit score is not included. I know what you are thinking, content is relevant but the score is the key.
A multitude of facts and data go into determining the credit score and the overall weighting is broken down into five categories.
- 35% Payment History
- 30% Amount of Debt
- 15% Length of Account History
- 10% New Credit Accounts
- 10% Type of Credit Accounts
Raising a FICO score is not an overnight process, it takes time. Here are a few tips to help positively impact your score.
Payment History
- Pay your bills on time.
- If you have missed a payment, get caught up and stay current.
- Understand that paying off a collection item does not delete it from your credit report.
- If you are not able to make your monthly payment, contact your creditor or a credit counselor.
Amount of Debt
- Keep your balances low on credit cards and other revolving credit.
- Pay off debt rather than transferring it to other creditors.
- Do not open unneeded credit cards just to increase your available credit limit.
Length of Account History
- Be cautious not to open too many accounts at one time.
- Do not close unused credit cards, it can hurt your credit score.
New Credit Accounts
- Rate shopping in a two week window.
- Open a reserved amount of new credit and pay on time to repair damaged credit.
Type of Credit Accounts
- Only open new accounts when needed.
- It’s ok to have credit cards, but they must be managed responsibly.
- Remember that closed accounts will still show up on your credit report.
For more information regarding credit reporting or to purchase a copy of your credit history and FICO score visit www.myfico.com.
About the Author: Emily Perkins is the manager of Truliant’s Clemmons, NC Member Financial Center.
