CREDIT SCORES

For many, the credit report is something that is taken for granted. It is often viewed merely as a piece of information that doesn’t make a difference and therefore doesn’t need to be checked on a regular basis. However, nothing could be further from the truth. Your credit report not only plays a crucial role in your life, but actually dictates in many ways what type of future you will be granted.

If you’re not yet in the habit of checking your credit report because you don’t think it’s important or you’re turned off by its price tag, it’s time to take a look at reasons that checking your credit report regularly is not only a good idea, it’s crucial.

It’s hard to maintain a good credit score even when you work hard to keep it in good standing. With credit utilization ratios, credit histories and even identity theft threats to concern yourself with, it’s important to take every step possible to make sure that the rest of your finances in order.


How can you do that? By avoiding silly mistakes that are sure to lower your score. Here are a few to avoid…

Refusing to Pay a Business and Allowing Them to Sue You

Learning how to build credit is a bigger deal now than it has been in decades. It’s important to not only show that you know how to establish credit, but that you also know how to maintain it and keep it in good standing for an extended period of time.

Checking your credit report and score are always helpful in knowing what’s going on with your credit, but understanding how to build credit is equally as important. The only problem with credit is that it follows a weird system that is often difficult to understand. For this reason, many myths about how to build it and keep it in good standing circulate regularly.

With the financial crisis leaving many leery of the credit and lending industry, tons of consumers have opted to ditch their credit cards for cash; however, a financial expert says this may not be wise. Ray Martin, the financial contributor for the CBS’ Early Show, explained that keeping one or more credit cards in active use is important for building and maintaining good credit.

People Are Ditching Their Cards

A new report from CreditKarma.com of San Francisco says that credit card debt increased 18 percent nationally in Oct. 2009 from July. According to the website, the increase in debt may have been due to the high unemployment rate.

The Data

Any active consumer knows the impact their FICO score can have on the interest rates they have to pay when borrowing money. Even those who have stellar credit histories are experiencing declines in their FICO scores due to a decrease in the total amount of available credit being offered by lenders.

One of the biggest components in determining your credit score is something called a “credit utilization ratio.”  In the FICO mathematical equation the amount of available credit in relation to the actual amount being used heavily weights the ultimate rank you earn. Ultimately the equation wants the consumer to have a high amount of credit with only a small fraction being used at any one time.

That was all fine and dandy when credit card issuers were happy to open up the lines of credit for those who deserved and until recently it was not uncommon for credit cards to provide their customers with tens of thousands of dollars in credit. However, in a move to mitigate their chances of loss, banks are reducing the amount of available credit that was already previously issued to consumers. That decrease in available credit in relation to debt being carried is negatively impacting the FICO score of many thus pointing out the overall fault in the scoring system.

In the prior year, it was previously announced that there would be revisions to how the FICO scoring system would change and that consumers should brace themselves for the new changes. As of the middle of August six changes to the existing system occurred and the FICO criteria has been altered in ways that you should be aware of. Although the “secret sauce” remain the same, the behaviors backing those numbers will be viewed very differently. From this point on consumers need to be aware that:

• Debts under $100 that were previously reported no longer have any impact on your overall score
• The total overview of your past behavior is more important then a single credit indiscretion so a missed payment or repossession from a couple of years will be negated with good overall debt management behavior
• Credit scores for children and spouses can be improved if they are put on an existing account as an authorized user of someone with great credit this changes the practices of “piggybaking” to increase one’s credit score
• As always the credit utilization score is still extremely important. The less available credit (meaning the more tied up with debt) the lower your score will be
• In that vain, closing accounts will also decrease your utilization ration so if you are no longer interested in having a particular account, pay it off in full and lock your credit card in your safe. Use it periodically for small amounts and pay off the charges immediately to ensure that the account stays active
• Variety is the spice of life with the implemented FICO score changes. With a mix of loan types varying from credit cards, to mortgages and personal loans and responsibly handling them all, you can raise your score

If you’re wondering about your creditworthiness, and want to see what lenders and credit bureaus think of you and your financial picture, you will probably want to see your credit score and credit history. Getting your credit score and credit history is easy; however, you need to be careful from who and where you are getting your credit report from.

There are a multitude of websites on the internet that advertise “free credit reports” or “free credit scores.” So it’s very easy to obtain your credit information. But one thing consumers should be aware of is that sometimes these websites that offer to give you free credit information fail to give the credit score that matters to lenders, and that is the FICO credit score. The FICO credit score system is generated by the Fair Issac Corporation by gathering your credit history from the 3 credit bureaus: Experian, TransUnion, and Equifax.

The biggest influence on your FICO credit score is your management of personal finances. If you spend more money than you make and are unable to pay off your credit card bills when they’re due, you are certain to see your score going down. The lack financial responsibility will cost you a fortune when the time comes to get a mortgage loan, as you will be subject to the highest interest rates; that is, if you are able to secure a loan at all. If you are finding it incredibly difficult to manage the sheer amount of debt you accumulated, then the debt consolidation may indeed help you out.

Debt consolidation is the process of using one larger loan to payoff a bunch of outstanding, smaller debts. All your debts will be bundled into one neat package that will be easier for you to manage. After locating a loan, all you need to do is calculate the maximum you can pay off monthly, see if you can set your payment date to coincide with a paycheck and then set up an automatic payment plan to ensure that you are never late with a payment.

Most American average at 723 on their credit score. The higher the credit rating, the better the interest rates on your credit cards, car loans and your mortgage loans as well. With the importance of your credit scores weighted so heavily it’s important to be aware of the top factors that affect your credit score so that you can check your credit report for accuracy.

Review your credit report for accuracy – One of the easiest ways to increase your credit score is to remove inaccuracies. If you’re not sure if there are inaccuracies on your credit report, get a free credit report now from a service like GoFreeCredit.comPay your bills on time – This is a big no-brainer, but don’t let any bill go unpaid. Set up payment reminders and make sure all your bills are paid on time, no exceptions.