Your credit score is a snapshot of your creditworthiness at a point in time.  Having a great credit score makes you attractive to lenders so they’ll offer you loans and credit cards at great rates which can save you thousands of dollars each year.   But if your credit score is low, lenders, insurers or employers aren’t as interested in you so you’ll pay more to borrow or get insurance and even be passed over for a job.  Your credit score matters so here are some tips to make sure you look your credit best.

Tip 1:  Check Your Credit Reports

Your credit report doesn’t just show how you pay your bills, it also shows whether you’ve been sued, arrested or filed for bankruptcy.  Since the information contained on the report is used to calculate your FICO score and might be seen by potential employers, there’s good reason for you to know what it says about you.  It only takes five minutes to request your an annual free credit report from each of the major credit reporting agencies (Equifax, Experian and TransUnion) by logging onto annualcreditreport.com.   The site allows you to request reports from all three agencies at once or request only one report and request reports from the other two credit agencies later in the year if you want to monitor your credit throughout the year.

Once you get your report, scan it for any discrepancy regarding delinquencies, loan balances and credit limits, unknown accounts or credit checks.  If you find any mistakes immediately write to the credit reporting agency to report disputed facts and to request any needed corrections.  You should also write to the party that reported the inaccurate information to let them know you are disputing the information reported to the credit reporting agency.   If you notice some unfamiliar accounts or requests for credit checks not initiated by you, you might have fallen victim to identity theft so immediately contact all three reporting agencies and the police if it looks like your identity has been stolen.

Tip 2:  Know Your Score and What Matters

Your FICO score is the standard score used in more than 90% of lending decisions.  To get your true FICO score you’ll have to pay for it at MyFico.com ($19).  If your score is above 750, keep up the good work as you are likely to qualify for the best rates on loans of any kind.  To just qualify for good rates you’ll likely need a score above 720 so if your score is hovering around 720, do what you can to clean up your credit image.

Understanding what goes into your FICO score allows you to make smart moves that improve or keep your credit score high.   Myfico.com explains that 35% of your FICO score relates to your payment history, 30% relates to the amount of debt you owe, 15% relates to how long you’ve had your credit, 10% relates to new credit inquiries, 10% relates to your ability to manage different types of credit (mortgage, installment, revolving (credit card) and consumer finance).   The remaining tips relate to making smart moves in these key areas.

Tip 3:  Pay Your Bills On Time

Your payment history is the most important factor affecting your credit score.  Your best bet is to pay bills as they arrive or to set up a weekly bill paying day with a reminder.  Making even one late payment can seriously lower your credit score.  Collections also have a major negative impact so be sure to pay all bills and don’t forget about paying parking tickets as they are a common collection item on credit reports.  If you have missed payments, get back on track and stay current as you can increase your score over time with a good payment history.  If you had a late payment but now have a renewed history of timely payments, you might improve your score by asking a lender to remove a late payment notice once you’ve changed your ways.

Tip 4: Use only a Portion of Your Available Credit Limit

Your debt to credit ratio, or more specifically, revolving debt (credit cards) to revolving credit ratio, is the second largest factor in determining your FICO score.  Myfico recommends that you only use 10-30% of your credit card available balances to improve your credit score.  While you certainly want to stay as close to the 10% credit utilization ratio a possible, don’t open credit card accounts you won’t use just to increase the available credit to reach the desired ratio.  To maintain the desired credit utilization ratio:  pay down credit card debt,  pay your balance off in full each month so next month’s charges won’t ever put you over the desired 10-30% utilization ratio and last, don’t close accounts after paying off balances as closing an account can lower your available credit and increase your credit utilization ratio.

Tip 5:  Use Your Cards and Don’t Cancel Old Credit Cards

Your length of credit history is the third largest FICO score factor.  To build a payment history, you have to use your credit cards but only charge what you can afford to pay off that month.

Your credit score improves with the length of your credit history so closing an old account brings down the average age of your credit history and hurts your credit.  Keep the old card and use it occasionally so that it counts towards your credit history, being sure to pay off the balance each month.

Tip 6:  Watch the Credit Inquiries

Anytime someone checks your credit your FICO score drops so if you are about to shop for a loan be careful about applying for credit cards as the application will trigger a credit inquiry.

Tip 7:  Don’t Use Store Financing Plans

Another factor affecting your FICO score is the type of credit you use.  While it may seem like a great idea to pay zero interest on the new sofa, store financing plans can be seen as last-resort type credit which might bring down your score so avoid them where possible.

Important Disclosure: This content is for informational purposes only. Opinions expressed herein are subject to change without notice. Beacon Pointe has exercised all reasonable professional care in preparing this information. Some information may have been obtained from third-party sources we believe to be reliable; however, Beacon Pointe has not independently verified, or attested to, the accuracy or authenticity of the information. Nothing contained herein should be construed or relied upon as investment, legal or tax advice. Only private legal counsel may recommend the application of this general information to any particular situation or prepare an instrument chosen to implement the design discussed herein. An investor should consult with their financial professional before making any investment decisions.

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