The Basics of FICO Score and How to Protect It

November 30th, 2011 | Posted in Debt Relief

Enhancing credit should always be part of financial planning. A good credit score can save you a lot of money in long term especially when you have to purchase big ticket items such as a house or a vehicle. As an example, having an excellent credit score could mean no or little down payment, reduced monthly payments, and reduced interest that you have to pay. Other advantages of having a good credit score is also for employment and lowering your monthly insurance payments. Companies with high profile employment opportunities would take a look at your credit score as a requirement for getting the job. These work opportunities are mostly in financial sectors that would need this. Insurance companies also provides lower premiums for people with good or excellent credit scores.

There are a lot of ways that you can enhance your credit score. While most people go through those credit repair companies, you do not have to use those companies to improve your credit score.

Below are the a few methods to improve your credit score:

Watch Your Credit Card Balance
Please keep in mind that the larger your total balance as a percent of your aggregate sum of your credit limit across all the credit cards, the lower your credit score would be. Experts say that you lose 1 FICO point for every percent of your credit limit that you use. So if you have a total credit limit of $5,000 and have an outstanding balance of $2,500 (50%), your credit score would be 50 points lower than if you had a $0 amount. Keep in mind that if you can’t pay off your total credit card balance in full, you should try to keep it below 30 % of the aggregate total credit cards amounts.

Time Your Spending
Payments made to your credit cards may take a a couple of months to get reported by the creditors to the credit bureaus. By not charging to your credit card at least 60 days before applying for new loans, chances are that all the payments you have made to date will be applied toyour credit score by the time a loan companies requests your credit report.

Always Pay on or Before The Deadline
If you can,always pay your credit card balance in full and mail it as fast as you receive the account statement. If you are unable to pay the amount in full, at the very least pay the minimum amount due.

Minimize Applying for Loans and Credit Cards in a Short Period
Creditors normally do not like to see a borrower who open new credit accounts in a short period. This is due to the fact that it raises the probability of you defaulting on the loans.

Avoid Closing Unused Accounts-
Closing any of your unused accounts will effectively increase your debt to credit limit ratio. Please keep in mind the first method – try to keep your balance below 30% of your total credit limit. As an example, assuming that you have three credit cards, that have credit limits of $5,000 each and one of the card is inactive and the total balance is $5,000 on the other two credit cards, closing the inactive credit card would increase your total debt to credit limit ratio from 30% ($5,000/$15,000) to 50% ($5,000/$10,000)

Be Cognizant of Your Credit
Always check your request for a credit report and review it for any incorrect information posted. Generally, you can get a free copy of your credit report annually form the free annual credit report website. When you request for a report, obtain for your credit score as well, too. Also, checking your credit report would allow you to catch any potential identity thieves.

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