Categorized | Opinion

Your Credit Score

By David Peel

David PeelHaving a good credit score can help you in many ways.
You probably already know that if you’re applying for a credit card or trying to purchase a home or car, lenders assess the risk they’re taking by loaning you the money using your credit score. Essentially, the better risk you are the higher your score, and the less interest you may have to pay.
You actually have three FICO scores, one from each of the three reporting agencies. While they are generally similar they will almost never be exactly the same. Additionally, FICO scores change every month in 83 percent of consumers.
Having a higher score usually get you approved for a loan faster if not instantly. You also tend to save money on things like car insurance and have an easier time passing certain clearances for certain types of jobs.
But remember that a credit score is not a determination of how much money you have. It is a determination of how well you have handled debt for a period of time.
As a matter of fact, your total gross income does not even figure into your credit score at all. It is possible to be independently wealthy, have literally millions in the bank, and not even qualify for a $500 Discover card because you don’t have a credit score.
By the same token, you can get into some serious credit card debt far beyond your ability to pay and still have a pretty good credit score till the very end.
Because the credit score is such a dynamic and moving target, it’s probably better to think of your credit score as a credit snapshot. In other words it’s how things look right this second.
There are five things that go into making up a credit score and they’re given different weights based on how important they are.
35 percent payment history
30 percent amounts owed
15 percent  length of credit history
10 percent  types of credits in use
10 percent  new credit applications
These are the relative importance for a standard consumer.
It is believed that if the payment history is regular and is not routinely like that the person is a good risk.
Further if the person has ample credit available, the lender can feel more comfortable that they’re not going to lose money.
The length of credit history tends towards reliability and possibly maturity as well as the types of credit in use. Because the age of the credit accounts is so relevant it is usually not a good idea to close your older accounts even if they’re no longer being used.
It may surprise you that someone with no credit cards is automatically considered to be the worst risk and someone who has credit cards. Therefore, the types of credit you have open do affect your score.
The final 10 percent for applying for new credit doesn’t ding you too badly but it can indicate someone who’s getting ready to take a risk by getting a bunch of new cards.
Steps to build your credit score:
Make sure bills are paid on time and by on time I mean early. Sending a payment in a day or two before it’s due almost always incurs a late fee and possibly reporting to the credit agency. Also credit cards 10 to rotate on my cycle rather than a certain day of the month so it’s the one bill that can bite you and is the one you will always pay a late fee for if you miss it.
If you are near the limit on one card and can’t pay it all if you can transfer it to another card which would put you below the limit. It is a good idea to always have at least 20 percent margin above your debt relative to your credit limit.
Don’t close old accounts until you’ve built up a year or two with your new accounts.
You can check your credit at any time using the website the government set up called annualcreditreport.com. While they will not give you a score on that site you can see how your credit is going and check for any problems so that you can fix your credit. Additionally, some credit cards are now providing FICO scores as part of their services, such as Discover.
Do not fall for the other so-called free credit report agencies as they charge you a fee after the first 30 days.
Please remember that just because you can qualify for something does not mean it’s a good idea.
Your grandmother taught you to pay cash for everything and she didn’t miss any meals. I wish Congress would listen to your grandmother.
Peel seeks justice for those injured in car accidents, work place incidents, medical malpractice, and nursing homes. He often addresses churches, clubs and groups without charge. Peel may be reached through PeelLawFirm.com wherein other articles may be accessed.
— What do you think? Send Letters to the Editor to thomas.sellers@journalinc.com.

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