Whether you are paying for college classes, buying a new car, or taking out a mortgage on your first house, there is one number you are going to need for the rest of your life. Your credit score.
Although the notion of racking up considerable debt is not appealing to most consumers, without a credit card or a loan, you can't attain a decent credit score. So this balance of borrowing and financing is a necessary evil.
Credit scores, or FICO scores which are calculated by Fair Isaac and Company, are used to evaluate your ability to manage large sums of money and make routine monthly payments. These scores range from 300 to 850. Your credit score may be accessed when you apply for a bank account, apply for a loan or financing, apply for a credit card or line of credit, take out a mortgage, or apply for a job, especially in the case of employment with financial institutions.
By keeping a few key factors in mind, you can maintain a healthy credit score with a lifestyle independent of considerable debt. According to Fair Isaac, there are five factors which go into calculating your FICO credit score.
You can take steps to ensure that each section of your credit report reflects good credit history. Just follow these guidelines from Fair Isaac.
Pay your bills on time. If you have missed a few payments, get current and stay current. Know that even when you pay off an account, it remains on your credit report. And if you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor.
Keep your balances low on credit cards and revolving lines of credit. Pay off debt rather than moving it around by balance transfers. Don't close unused credit cards. If your balances are still high, having fewer open accounts may lower your score. Don't open new credit cards you don't need. When too much credit is available, it may lower your credit score.
Don't open too many new accounts at once. This will lower you average account age and may in turn lower your credit score.
When you are shopping for good rates, conduct your search in a short amount of time. Too many requests for credit over a long length of time may look like several attempts to get new credit lines, instead of one informed financing search. Re-establish your credit history if you have had problems. Making on-time payments on a regular basis and paying down credit, without opening new accounts, will gradually improve your credit score. Note that it is okay to check your credit report as long as you do it directly through credit reporting agencies. These inquiries will not lower your score.
The key is to have several types of lines of credit, but not too many, and to continue making timely payments on each account. Improving your FICO score can help you get better credit offers, obtain lower interest rates and speed up credit approvals. For a free copy of your credit report, go to www.annualcreditreport.com and request a copy directly through one of the three most trusted credit agencies.
