Valorie Ford's Blog

How Is Your FICO?

A number that can change your life: Your Credit Score

You may pride yourself on your high credit score, but have you checked it lately?  Unfortunately, bad credit scores happen, and sometimes it is through no fault of your own.  A credit card company or department store may make a mistake recording one of your payments.  Or you may have fallen pray to identity theft!  Your score can take a dive when you are not looking and this can cost you thousands.  It is your responsibility to monitor your credit, continue good financial habits and report any fraudulent activity.

                      If your score is not so great, right now is the time to start repairing it.  Why?  Because with a good score, you may get better rates on loans, insurance and credit cards to name a few.  It will also save you money in the long run.  Potential employers sometimes request and review your credit when you are job hunting to see if you are financially responsible.  You need to make sure to keep your score stellar!  Here™s how¦

1. Know what the numbers mean.  Most lenders use what is known as the FICO score, for the Fain Isaac Corp.  While a perfect score is 850, that may be a bit high to shoot for.  I recommend aiming for a 780 as a suitable target score.
2. Pay current bills on time.  This has the single greatest effect on your credit score.  Under the current FICO system, 35% of your actual credit œscore is calculated based on how well you pay your bills.  For more information, visit www.fico.com .  If you aren™t good about mailing off a check every month, look into setting up automatic payments with your bank™s online bill pay system.  Whatever you do, do not pay your bills more than 31 days late because it will be recorded on your credit report.
3. Consider a Credit Monitoring Service.  Sometimes banks offer monthly monitoring services.  This can aid in monitoring any and all account activity.  It also helps because you can make sure all agencies are reporting correctly i.e. no mortgage or credit card lates reported incorrectly.
4. Pay Down Debt.  When you go to purchase a home, lenders use what is called a debt-to-income ratio to determine how much house you can afford.  Excessive debt will lower your credit score and reduce your buying power.  You should strive to use no more than 30% of your available credit.  For example, if you have a credit card with a $1000 limit, don™t carry a balance on the card of more than $300.  Your debt ration accounts for 30% of your FICO score!
5. Use your credit card responsibly.  Credit cards are NOT bad!  Some people hear credit card and their palms start to sweat.  Credit cards help to build credit worthiness.  However, reckless credit card use can also destroy it.  Not everyone is hard wired to handle a credit card responsibly.  If credit card debt has caused your credit score to tank, grab the scissors!  You do need to keep one card open to help establish a solid credit patter moving forward.  Try buying all of your gas on a credit card every month then paying them off at the end of the month.  Do the same with groceries.  Some cards help you to get frequent flier miles.  Why not build your credit and your miles at the same time?  Keep your credit cards open rather than closing them as this helps to establish a long credit history.  It is good to have two or three credit cards, but much over that can hurt you.
6. Do not fall prey to credit repair scams.  If you have some bad credit history, you have probably seen the signs on the side of the road talking about how they will œerase bad credit?  If it was that easy, everyone would be doing it!  These credit repair companies make promises that vary, but some are rather outlandish.  Keep in mind that if you become involved with any illegal activity you could potentially face criminal charges!  Some companies promise to give you a new credit identity (which isn™t possible¦legally!).  Whatever you need to do to repair your credit, you can do yourself for free.  From this day forward, start moving forward establishing new credit and make a plan to fix or pay off what you have as bad debt.  You can start seeing improvements in as little as a few months.  A complete credit overhaul, however, may be a few years off.