Credit Scores 101

Women and Credit CardsMost people have credit cards. Your credit score matters, so don’t take it for granted. And if it is low, here are ways to give it a turbo boost.

The most commonly used credit score is from FICO, and it is vital to your financial health. Fair Isaac Corp. created the FICO credit score in 1958, and it has stood the test of time. By the company’s measure, scientific analysis and calculation, the highest score is 850. Congratulations to all of you are at that level.

However, most people’s score does not reach those heights. Each lender has its own way of interpreting the score. Most lenders agree that any score above 750 is excellent, around 650 is fair and under 600 is poor. The closer you are to a 750 score, or above, the more likely a lender will approve you and charge you lower interest rates.

The first and most important is to pay all your bills on time. Late and skipped payments can really hurt your score. Next, keep balances on credit cards as low as possible. Paying off debt is a much wiser choice than moving debt from credit card to credit card.

Pay off the credit cards with the highest interest rates first. Every time you apply for and open a new credit account, your score goes down, so be wise with those applications received in your mailbox. Raise your score by maintaining having balances lower than your credit limit.

Your FICO score summarizes your credit risk and is based on your credit report. You must request and inspect your credit report at least annually. Each year you can receive a free copy of your credit report from www.annualcreditreport.com. There are a number of other websites that say you will receive a free credit report, but if you have to provide a credit card to get a free report then it is not really free.

Only this site provides no-strings-attached reports. Reports are provided from the three major credit reporting agencies (Equifax, Experian and TransUnion). Once you have your reports in hand, do not stop because you still have work to do.

Verify the reports and determine if there are inaccuracies. Clear up anything that is not correct by contacting the credit reporting agencies with the correct information. Inaccurate information can lead to denying you credit or paying a higher interest rate.

The ideal person, in the eyes of the credit bureaus, is someone who holds a job for some time, owns a home or rents an apartment for several years and holds just a few cards that are paid on time. They also like those who carry some balances, usually 30% or less of the credit limit, because card issuer make money from interest payments.

A low credit score can cost you significant time and money. Get a higher score for a winning financial life.

Kimberly J. Howard, CFP, CRPC, ADPA, is the owner of KJH Financial Services, a fee-only practice located in Newton, Mass. (781-413-4879). Please visit her at www.kjhfinancialservices.com or email Kim at kjh@kjhfinancialservices.com

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