|
Financial Mistakes Affect Your Credit Worthiness, Fair Isaac Offers Tips To Improve Credit Score
Most of us have probably made poor financial choices at some point in our lives, and we’ve been able to identify and resolve our financial mistakes. However, failure to resolve financial mishaps could wreak havoc on our future ability to obtain credit. Unfortunately, many consumers do not understand the degree to which poor money management can impact their credit scores. According to the Fair Isaac Corporation, developer of the FICO credit score, about half of all consumers do not understand that credit scores measure credit risk.
FICO credit scores range from 300 to 850 and are calculated from a host of criteria from consumer credit reports that can be broken down into five categories: a consumer's payment history, amounts owed, length of credit history, new credit applied for or taken out, and types of credit used. Because many consumers do not understand what makes up a credit score, they may in fact inadvertently hurt their credit score by the financial choices they make.
Fair Isaac offers consumers the following tips to improve their FICO score:
- Shop for a loan within a focused period of time: Looking for a mortgage or an auto loan may cause multiple lenders to request your credit report, even though you're only looking for one loan. To compensate for this, the FICO score counts multiple auto or mortgage inquiries in any 14-day period as just one inquiry. To ensure multiple inquiries do not adversely affect your credit score while you're shopping for a loan, make them within 14 days. In addition, the FICO score ignores all mortgage and auto inquiries made in the 30 days prior to scoring. If you find a loan within 30 days, the inquiries won't affect your score while you're shopping for credit.
- Pay bills on time: Always paying your bills on time is the best thing you can do to help your score. If you've been late in paying bills in the past, it's important to demonstrate more timely payment patterns as soon as possible. Although late payments shown on your credit report can adversely affect your score, they will count less over time.
- Check credit reports for accuracy: Errors can happen and you may find one on your credit report. If you do spot an error, contact the original creditor and all three national credit reporting agencies - Equifax, Experian and TransUnion - so that the inaccurate information won't reappear later. Be sure to order your report directly from one of the three credit reporting agencies or an organization authorized by them so that your request for a credit report won't be confused with an inquiry from a potential creditor.
- Pay off debt, don't move it around: Opening a new credit card account to consolidate debt can lower your score for a few months. Your FICO score is based on both individual card debt and the total amount of debt on all credit card accounts, so consolidating your credit card debt on one card or spreading it over multiple cards will not help your score in the long run. The most certain way to help your score is to pay down the amount you owe.
- Contact a legitimate credit counselor for help with financial difficulties: This won't help your FICO score immediately, but the sooner you begin managing your credit well and making timely payments, the sooner your score will improve. For recommendations on how to select a reputable credit counselor, visit the Federal Trade Commission (FTC) site at www.ftc.gov.
In addition to these tips from Fair Isaac, Bankrate.com offers readers additional suggestions:
- Solve and dissolve debt: Devising a spending plan can help reduce your debt and set you up to pay on time, every time. If you're having difficulty making payments, be proactive. Call your creditors and negotiate to keep your accounts current and from being reported as delinquent or "bad debt." You can ask for reduced monthly payments or even change due dates to balance out your monthly bills. Deal with any collection accounts. Unpaid collections are worse than paid collections. You can negotiate a payoff settlement that reduces your bill, and demand that all derogatory remarks are removed from your credit report or at least reported as paid in full. Be sure to get verbal agreements in writing before sending off your payment.
- Add stability to your credit file: You can also work to add positive information and show stability in your credit file. You may have been denied credit because of an insufficient credit file, yet you have credit. Some creditors may not report your credit history to the credit bureaus. You can try asking the credit grantors to report your account information and monthly payment history to a credit-reporting agency. If you have really bad credit -- perhaps even filed bankruptcy -- don't let your credit status go dormant - the faster you begin to re-establish good credit, where you pay on time, every time, the faster you'll improve your credit score.
- Build a solid credit history: A secured credit card offers those with no credit and those repairing their credit this opportunity. Shop around for the best deal available, but limit your applications. Credit bureaus look at how many new accounts you've opened, and the number of "inquiries" for new accounts that are listed. A sudden flurry of "inquiries" results in a lower score, because many times consumers anticipating money problems increase their credit lines.
- Open a savings account: This shows creditors that you are working to save and that you have reserves to repay debts.
|
