Credit scores determine everything from your ability to get a loan and the rate you’ll pay – to whether your apartment rental or cellphone application is accepted. Some employers check the credit scores of potential employees. There are those who even check the credit score of a potential spouse.
In this Money Quick Tips, we look at the math and mystery behind credit scores and what you need to know.
The Consumer Protection Bureau has revealed that the biggest factor used to determine your overall credit score is – more than any other managed expense including rent, tuition or car loans – credit card use.
It’s the single most heavily weighted variable making up more than half of the information on the average credit report.
Here are some do and don’ts on credit card usage and how it affects your credit score:
• Timing can be everything. Don’t open new credit cards if you’re about to apply for a big loan or pursue a mortgage refinance. You won’t have time to prove you’re not going to use and abuse the newly acquired spending power.
• Timing matters when closing credit cards. Taking a long standing card out of the mix lowers the average history length of your combined accounts and a longer track record is considered stronger and more reliable.
• Some issues may take 7 years to shake. If your payment history is less than stellar with a card, closing it does not close the books at that history. That will take 7 years to disappear from the report, but the effect will diminish over time within that 7-year window especially if you bring your payments up to date as soon as you can.
• Only use 25% of available credit. Your single most best go-forward move is to keep spending on any and all of your cards to 25% or less that their limits.
If you’re looking to apply for a loan, rent an apartment, or even apply for a job in 2013 and fear your credit score might have fallen to the wayside, here are seven tips on how to improve your FICO report:
1. Make sure to stay on top of your credit reports by checking them for free at annualcreditreport.com.
2. Watch your credit multiple times a year with a free service like the Credit Report Card at Credit.com.
3. Join a program provided by credit reporting agencies that alerts you to the first signs of identity theft. These programs can be pricey, up to $50 a month, but worth it if you think you’re at a high risk for stolen identity– LifeLock and TrustedID come highly recommended.
4. Make a habit of checking your bank and credit card statements daily in order to catch any odd spending.
5. Sign up for emails or text messages from your banks and credit cards that let you know when you cross a certain spending threshold.
6. If you find negative information on your credit report that’s inaccurate, notify the appropriate institutions immediately. Credit report companies are required to launch an investigation on anything you report as false, Levin says.
7. Make a plan to rectify poor spending decisions and become more diligent about paying bills on time.
FICO scores are an important factor in both professional settings and also in our social lives and it’s best not to limit either because of a bad report.
SOURCE – Regina Lewis , Money Quick Tips, USA Today
Nicole Goodkind, The Daily Ticker, Yahoo Finance