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Need a Credit Score Boost? Here’s What You can Do

Credit Score

If you are lamenting over your low credit score and you plan on making a large purchase in the near future, you may be wondering what, if anything, you can do to boost your credit score so that you can either get approved for a loan or line of credit or receive a more competitive interest rate.

Although raising your credit score can’t happen overnight, there are a number of things you can do bump up your credit score in the next few months:

• Pay down any credit cards that are near their credit limit. Paying down credit cards is an important step for raising your credit score, particularly if you’ve either maxed out of the card or have a balance of more than 50 percent of the credit card limit. This is because the credit reporting bureaus, in addition to considering your credit history and spending habits look at the amount of available credit. Your best bet is to raise your debt-to-available-credit ratio as much as possible before making a large purchase or taking out a line of credit.
• Don’t underestimate the power of paying your bills on time. Many consumers think that missing a bill or two won’t make much of a difference on their credit score, but that is simply not the case. According to FICO, you can actually lose as much as 110 points off your credit score simply by missing a payment by 30 days.
• Don’t apply for any credit cards in the months preceding a large purchase. Any time a creditor runs a credit check your credit score takes a hit.
• Don’t close any credit card accounts in the months preceding a large purchase. Cancelling any credit cards automatically lowers your debt-to-available-credit ratio, thereby decreasing your credit score.
• Check your credit score. The three, major credit reporting agencies, TransUnion, Experian and Equifax, provide a free copy of your credit score each year, so take advantage of this and check out your credit report so that you can remedy any mistakes or inaccuracies.

Is it Possible to Have a Good Credit Score without a Credit Card?

Credit Score

Many individuals, after a difficult couple years, have decided to abandon credit cards altogether and live a cash-only lifestyle. If you, too, are fed up with the credit card industry and all of the challenges that this industry has faced over the past two years, you may be tempted to also abandon credit cards.

But is this the right decision to make?

The Effects of Closing your Credit Card Accounts

Let’s first assume you have credit cards to begin with and you cancel them. Your available credit comprises 30 percent of your credit score, so closing credit card accounts will have an adverse effect on your credit score. In fact, having absolutely no utilization percentage is worse than having a low utilization percentage caused by high credit card balances and low, available credit.

You can be certain to have a better credit score by just having a small balance on a credit card.  If you cancel your credit card and have no other credit cards open, you will likely lose points on your credit score.

In addition to open credit, though, is your credit history. In other words, if you don’t have any other open accounts, but you have a long length of credit history, you may still maintain a strong credit score.

Other Items Affecting your Credit Score

However, your credit score is not only determined by the use of credit cards. Other items, such as auto loans and student loans, can help you maintain a strong credit score.

Keep in mind, though, that if you fail to have any other type of loan and you don’t have any credit cards, you could fail to have a credit report at all. The minimum scoring criteria, according to FICO, is determined by at least one open account that has been updated in the past six months. In other words, if creditors don’t report anything on your credit score for six months, you could fail to maintain any type of credit score at all.

Your best bet? Keep at least one credit card open and make a point of charging on that card at least three to four times a year.

Facts about Credit Cards and your Credit Score

Credit Score

Do you think you know the secret to a great credit score? Most of us certainly seem to think so, but there are quite a few factors – many of which we are not aware – that can have a big impact on your credit score.

• To activate or not activate – Many individuals think that if they don’t activate the credit card they receive in the mail then it won’t show up on their credit score. Unfortunately, this is not the case, as the account shows up as being active, even before you activate it. So if you change your mind about a credit card somewhere between applying for the card and activating it, know that the account has already shown up on your credit score. Your best bet is to make sure you take the time to understand whether a new credit card is right for you before you apply for it.
• What you don’t know about can hurt you – If you think you are in the clear because you pay your bills on time, you may be wrong! Many people have incorrect information on their credit reports that ultimately damages their credit scores and their chances of getting competitive interest rates on everything from cars to homes. Your best bet? Always take the time to check your credit score to ensure that the information that is on it is accurate. Most financial analysts recommend checking your credit score at least once a year.
• Paying your bills on time are just one part of the equation -  You pay all of your credit card bills on time each month, so you must have great credit, right? Most people don’t realize that bill payments are just one part of your credit score. Another large part of your score involves the amount of open credit on your credit score. In other words, if your credit cards are maxed out, regardless of whether you are able to pay your monthly minimum payments, your credit score may take a hit because you have very little available credit.

Your Credit Score: Broken Down

Credit Score

We all know that our credit score is of great importance, as it determines our ability get a loan or any other type of credit, but not many of us really understand the many factors that go into determining the all-mighty credit score.

Understanding the components that determine our credit score will ultimately enable us to better manage our credit, so it pays to take the time to really understand what our credit score is really trying to tell us:

• Payment History – Our payment history makes up about 35 percent of our credit report.  Our payment history is the largest component of our credit score, as it ultimately allows a lender to see if you have repaid loans in the past in a responsible manner. With this in mind, it is important to understand that any late payments made on loans, credit cards, and even utility payments, can have a negative effect on your credit score. In addition, your credit score will detail how late you were – 30, 60, 90 days or beyond.  In addition, if you have any accounts that have gone to collections for failure to repay, you can expect your credit score to take a serious hit. Other important factors that make up your payment history include: charge offs, debt settlements, bankruptcies, foreclosures, wage attachments, and liens.
• Debt Amount – Your current debt is the second most important component of your credit score, as it makes up about 30 percent of your credit score. The credit reporting agency will look at a few factors when determining this component of your credit score, including: total available credit used; amount owed on specific accounts (mortgage, car loans, installment loans, credit cards); and how much of original installment loan balances have you paid down. The general rule of thumb is to keep your credit card balances to less than 30 percent of your total available credit. Because of the importance of this component of your credit card score, many individuals will aim to pay down their debt before taking out a large loan.
• Credit History – How long have you have been using credit is the third most important component of your credit score, as it makes up about 15 percent of your total credit score. Some of the things considered include the age of the oldest account and the average age of all accounts.
• New Credit – Another 10 percent of your credit score is determined by how many new accounts you have. This includes newly opened accounts and recent applications for new accounts.
• Types of Credit – Another 10 percent of your credit score is determined by the types of credit you possess. Diversified credit is often helpful when determining this component of your credit score.

How to Protect your Credit Score in Four Easy Steps

Credit Score

Do you know the ins and outs of protecting your credit score? If not, you’re not alone. Most of us don’t fully understand our credit scores because there are so many factors that go into determining our FICO score. However, in addition to paying your bills, there are a number of things that can either positively or negatively affect your credit score.

Here is our list of the top four steps you can do to protect your credit score:

1. If you don’t want nor need a credit card account any longer your first instinct may be to close that account. However, doing so could mean a lower credit score. It may seem more logical that having too much open credit on your credit score could lower your credit, but actually the opposite is true. Closing a credit card account lowers your available credit, thereby raising your debt-to-income ratio, something that the credit reporting agencies use when determining your credit score.
2. If you have any credit cards that are at or near their limit, you could be lowering your credit score. In other words, your credit limit is not an invitation to spend it all. The best rule of thumb when speaking of credit card spending is to limit your spending to no more than 30 percent of your credit limit. Any more than 30 percent could have a negative effect on your FICO score.
3. If you fail to make just one or two payments over the course of a year you may not think your credit score would suffer all that much. However, nothing could be further from the truth. In fact, one 30-day delinquent payment could mean as much as a 100 point drop in your credit score. Remember: in order to enjoy a great FICO score you must make all payments on time, without exception.
4. Falling into the retail credit card trap could cost you big. If you are inclined to take advantage of those “open an account today and save on your purchase” offers you could be setting yourself  up for trouble, as opening a number of credit card accounts at any given time can prove to be detrimental to your credit score. In addition, the high interest typically charged on retail credit cards could put you in over your head quickly in debt.

When to say When: How many Credit Cards are too Many?

Credit Score

The art of obtaining a good credit score can be quite tricky. You must have credit cards in order to build a strong credit history, but too many credit cards can lower your score. You have to apply for a credit card in order to be approved, but applying for too many credit cards can lower your credit score. You must spend on those credit cards in order to build a credit history, but too much spending can lower your credit score. Hmmm. Confused? You’re not alone!

If you are a credit card holder, you may be wondering if you have too many credit cards and if they will affect your credit score, either positively or negatively. Although it would be nice to have a definitive answer, the fact of the matter is that the right number of credit cards will be different for everyone.

However, there are a few ways you can examine your personal financial situation to determine if you have achieved a happy medium between not enough credit and too much credit:

• Review your current credit card situation – Are you currently able to handle the credit cards in your wallet? What are the finance charges and are those finance charges reasonable?
• Reexamine your ability to manage all of your cards – Are any of your current credit cards maxed out? How much credit do you have left on your cards (the credit reporting agencies will often lower your credit if your balance exceeds 30 percent of your limit)? Have you been late paying on any of your cards in the past six months? Do you often feel overwhelmed by your debt?
• Consider whether consolidating or canceling credit cards is right for you – Although most financial experts will encourage you to keep your credit cards open (even if you don’t spend on them) so that your available credit will raise your credit score instead of lowering it. However, if you feel like you will overspend on your credit cards, it is best to close the account. The small ding on your credit report will certainly be offset by the temptation you eliminate by canceling the card.
• Reexamine your spending lifestyle – If you are a good credit card holder, a credit card can easily raise your credit score and allow you to benefit from it; however, reckless, careless spending often has the opposite effect, so always take into consideration your personal financial spending situation and spending habits.

The Top Three Things you can do Today to Increase your Credit Score

Credit Score

The process of increasing your credit score may seem like a daunting task, but in reality it just takes time and a good, solid game plan.

If you want an action plan for building or rebuilding your credit, here’s what you need to do:

1. Pay all of your bills on time. OK, so this may sound quite explanatory, but in reality late bill payments are the number-one cause of poor credit scores. Many individuals only view payments such as car payments and credit card payments as important in terms of their credit score, but in reality every type of bill payment is important when it comes to your credit score. In addition to the obvious, installment type of loans, don’t neglect student loan payments and utility payments. Remember: every debt and every bill matters in the eyes of your FICO score!
2. Get the maxed out credit cards paid down first. Although debt may be the same in the eyes of creditors, your debt-to-income ratio plays a big part in your credit score. In other words, if you have a credit card with a credit limit of $10,000 and you have $10,000 charged on that card, your credit score will take a hit. As a general rule, always try to keep your credit card balances to no more than 50 percent of your credit limit. Your first order of business, therefore, should be to pay down the debt on those cards that are either maxed or near their limit.
3. Don’t cancel credit cards along the way. You may be tempted to cancel credit cards as you pay them off, but this may do more harm than good. If you are really tempted to begin spending on your credit cards again, then it may be in your best interest to cancel them. Otherwise, pay them off but keep the accounts active. This open credit available on those paid-off credit cards will boost your debt-to-income ratio, which will in turn boost your credit score.

The Link between your Credit Score and Closing a Credit Card Account

Credit Score

Have you heard the rumor about your credit card score being lowered if you close your credit card account? Are you now nervous about closing any type of account?

If so, then you must take into account several factors.

Annual Fees

First of all, many credit card companies are now imposing very steep annual fees on their credit cards. For example, Citi is now starting to impose a $60 annual fee on some of their credit cards. The fact of the matter is that most credit cards will not impose an annual fee, so in my opinion it only makes sense to close an account that is going to charge you an unnecessary fee. Will it lower your credit score a few points? Sure. Will saving the $60 every year be worth it? You bet.

Inactive Account Fees

In addition, many credit card companies are now charging fees for inactive accounts. In other words, if you have an open credit card account that you no longer use, you could very well be charged an “inactivity” fee by your credit card company. Again, in this instance, I would say that it is best to save yourself the aggravation and the unnecessary fee and close the account.

If you are unsure about closing your credit card accounts, but you want to avoid the fees, there are steps you can take. For example, simply charging one or two purchases a year on a credit card will stop the inactivity fee. You can also call your credit card company and dispute the annual fee; many credit card companies will comply if you are a good customer.

In the end, closing your credit card account will probably not lower your credit score substantially. Many times, a closed credit account lowers your FICO score because it shortens your length of credit history. Although this is usually true, the fact of the matter is that if you have a good credit score closing one account won’t affect your FICO score for very long.

You may, however, want to avoid closing an account before making any large purchases, such as a home or a car, as you will want your credit score to be as high as possible as to secure the best interest rate.

A (Relatively) Painless Guide for Improving your Credit Score

Credit Score

If your credit score is lower than desired, take heart. There are many ways in which you can begin rebuilding your credit and redeeming your credit score.

Your credit score is incredibly important, as it will determine your eligibility for certain types of loans and credit, and will be a big determining factor when it comes to competitive rates.

• Pay all of your bills on time – OK, so this may sound like simple advice, but it is still worth mentioning. Many people think that paying a few bills late here and there will not affect their credit score but, in reality, it can lower your credit score quite a bit. If you have trouble managing your monthly bills, consider signing up for online bill payments, either through your bank or through your creditor. This will allow you to set up payment dates and amounts, thereby ensuring that your bills will be paid on time, each and every month.
• Order a copy of your credit report – It may be a bit painful to look at your credit report, but it is necessary for rebuilding your credit. Take the time to thoroughly review your credit report from all three credit reporting agencies and check for errors. Errors and discrepancies can be quite detrimental when it comes to your credit score, so immediately report any problems to the appropriate agency.
• Check your debt-to-income ratio – How much of your available credit are you currently using? Much of your credit score is determined by your available credit, also called your debt-to-income ratio. For example, if you have a credit card with a $9,000 balance and your limit for that card is $10,000, you will likely have a very high ratio. The best way to combat this ratio is to pay off your credit cards and keep your credit lines open. In addition, it is best to avoid canceling any credit cards, as this lower your available credit and subsequently lower your credit score.

Credit Card Mistakes – What to Avoid to Save Your Credit Score

Credit Score

Credit cards have become a way of life for many people all over the world; especially here in the United States. A credit card can be a very beneficial financial asset in many ways, so long as the card holder is careful and responsible. However, many people find themselves missing things or making mistakes they did not intend to make. When it comes to credit cards, these seemingly small mistakes can cost you your card, your rate, your credit limit and even your credit score. If you want to avoid such hassles, watch out for some of the following common mistakes.

Due Dates

Make sure you know when that bill is due; not only the date, but check for time of day, as some companies charge penalties if the payment comes in after a certain time. This will help you to get that bill paid on time. This should not be very hard for most, especially now that the new credit card laws will soon be in effect and your bill will be required to be due on the same day every month.

For holders of multiple cards, this can get tricky. Use a calendar to track due dates, set up automatic pay and e-mail reminders, or consider calling your numerous companies and trying to get your due dates in sync based on what you can afford.

Watch Paying Minimum Balances

Admittedly, it is nice to have the option to pay the minimum balance on your card when money is tight. However, doing this often does not help you out. You are incurring more and more interest on carried balances. You wind up paying a lot more in the long run. To protect yourself and your credit, it is best if you can keep your balance down and pay the balance due  in full each and every month. If you are having a hard time, try to at least pay more than the minimum balance and work as fast as you can to pay off the rest. Remember, if you don’t carry a balance, you don’t carry any interest, saving you lots of money and headaches.

Keep Your Debt Under Control

Watch your credit card spending. Do not pull your card out for every purchase. If financial troubles hit, curb or eliminate your spending until things are back on track. If the debt is mounting, do not ignore it. Take control, stop spending, pay down your balances and cancel the card or cards if you have to. Save yourself from debt. You don’t have to sign your soul over to the credit card companies!

This does not apply to credit cards alone. Want to save your credit score and your good rates? Watch all of your debts. Those credit card companies can and will monitor customer credit reports. Any slow-pays or no-pays will send up the red flag, whether or not the credit card company has any real reason to worry. You will then be tagged as a high-risk and might be penalized with lower limits and higher interest. Who wants that?

Learn to budget, pay down your debt, give up those little (and big extras) until you have control. Take care of debt first and foremost and save you credit score from falling into a hole that is near impossible to crawl out if. If this does occur, give credit cards up until you can gain control. Use other methods to rebuild your score once your debt is paid down and think about credit cards later on when you have the means and the knowledge to keep things flowing smoothly.