Maintain a High Credit Score

HOW TO MAINTAIN A HIGH CREDIT SCORE WHILE MANAGING YOUR DEBT

Maintaining your credit score is something that we should all be striving to do. The higher your FICO scores, the more options you have as a consumer, whether you are purchasing, leasing, applying for a new line of credit, commercial, residential, etc. 

A few facts you should know:

- A FICO (Fair Isaacs Corporation) score can range from 300 to 850. The very best rates often go to people with scores above 760, but lenders may consider a score of 700 to be good (the median score is 725). If your score is below 620, it’s time for concern.

- There are three primary bureaus that report your FICO score. They are Experian, Equifax, and Transunion. Each of the three bureaus investigates each individual differently, and they will usually credit different scores to the same consumer. Usually there is not very much difference in the scores calculated, but there will be some disparity between the three. To accommodate for this disparity, a lender will typically take the middle score of the three bureaus (an easy way for them to calculate an average). 

Here are some tips for you and your clients to achieve and maintain a high credit score.

Payment History Tips:

- Pay your bills on time. – Delinquent payments and collections can severely impact your FICO score. This may seem trivial, but late payments and collections will dramatically affect your overall credit score. Just one late payment can reduce your score significantly, and it usually takes considerable time for your score to get back to where it was before the late payment was recorded.

- If you have missed payments, get current and stay current – The longer you pay your bills on time, the better your credit score will be. There are times when an individual will miss a payment completely, and then continue to make their regularly scheduled payments, but will not pay back the amount that they missed in the previous payment. This can have a very negative impact, as most agencies will continue to report late payments until the borrower has brought their entire account current. 

- Be aware that paying off a collection account will not remove it from your credit report. – Paying off a collection is the first step to rebuilding your credit, however, this will not delete the collection record from your credit report. Delinquencies that are reported to the bureaus will remain on your credit report for 7 years.

- If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor. – This won’t improve your credit score immediately, but if you can begin to manage your credit and pay on time, your score will get better over time.

Amounts Owed Tips:

- Keep balances low on credit cards and other “Revolving Credit” – High outstanding debt can affect a credit score significantly.

- Any balance over 50% of what your credit limit is will negatively impact your score. Example – If you have a credit card with a $1,000 Limit, if you keep a balance of $500 or higher, it will negatively impact your score each month you do so.

- Any balance over 30% but under 50% of what your credit limit is will have no positive or negative affects on your score. 

- Any balance under 30% of what your credit limit is will positively impact your score each month.

- Taking all of this into consideration – it is suggested to use your credit on a monthly basis, but to pay it off, or at least pay it under the 30% threshold to keep a positive monthly rating for your overall score.

- Pay off debt rather than moving it around – The most effective way to improve your credit score in this area is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your score.

- Don’t close unused credit cards as a short-term strategy to raise your score. – The credit bureaus actually reward your loyalty, even if you rarely use the card. The reason why is because 15% of your score is based on the length of your credit history, and that includes the age of your oldest account as well as the average age of all of your accounts. This can also have a positive impact on your credit utilization rate. 

- Closing credit accounts can actually have a negative impact on your score. Example – When you are applying for a loan, a lender is going to consider how much Credit you have available to you. Someone who has a credit line of $10,000 is going to have much more to fall back on if they fall into a financial hardship than someone who only has a $1,000 credit line. 

- Don’t open a number of new credit cards that you don’t need, just to increase your available credit. – This approach could backfire and actually lower your credit score by adding additional unnecessary inquiries.

Length Of Credit History Tips:

- If you have been managing credit for a short time, don’t open a lot of new accounts too rapidly. – New accounts will lower your average account age, which will have a larger effect on your score if you don’t have a lot of other credit information. Also, rapid account buildup can look risky if you are a new credit user. 

New Credit Tips:

- Do your rate shopping for a given loan within a focused period of time. – FICO scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur. So to make sure that this does not negatively affect your score, try to do your shopping in a short period of time, not over the course of a few months.

- Re-establish your credit history if you have had problems. – Opening new accounts responsibly and paying them off on time will raise your credit score in the long term. 

NOTE – It is OK to request and check you own credit report. – This won’t affect your score, as long as you order your credit report directly from the credit reporting agency or through an organization authorized to provide credit reports to consumers. 

Types of Credit Tips:

- Apply for and open new credit accounts only as needed. – Don’t open accounts just to have a better credit mix – it probably won’t raise your credit score.

- Have credit cards, but manage them responsibly. – In general, having credit cards and installment loans (and paying timely payments) will raise your credit score. Someone with no credit cards, for example, tends to be higher risk than someone who has managed credit cards responsibly.

- Note that closing an account doesn't’t make it go away. – A closed account will still show up on your credit report, and may be considered by the score.

LAST BUT NOT LEAST…If it sounds too good to be true – it probably is!

No matter what, don’t become a victim of a sleazy credit-repair scam. Many of these firms use illegal practices, while others charge you exorbitant fees for things you can do on your own for free. And remember, you are providing a credit-repair agency with highly valuable information, such as your social-security number and account numbers. Poor judgment here could leave you significantly worse off than when you started.

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