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What goes into my credit score?
Dear Debt Adviser:
I have good credit, but a lot of credit cards
with not a lot of balances on them. What are some things I can do
to help my credit score go up? I don't know typically if there is
a certain amount of cards you should hold.
Mark
Dear Mark:
It is a great idea to maintain your good credit history and seek
to improve it. A good credit history allows you the best options
when it comes to negotiating a mortgage loan, a credit card interest
rate or even future employment.
To answer your last question first, I recommend that
you limit the number of bank-issued credit cards to those you actually
use. I generally suggest a MasterCard, a Visa and an American Express
or Optima. Bankrate's credit
card search engine will help you shop. As you pare down the
number of cards you have, try to keep the amount of credit available
at your existing level. For instance, if you have seven cards with
$5,000 limits, try to keep a $35,000 overall limit on the ones you
keep. That will keep your debt-to-credit ratio constant and will
not affect your score. Also, having one of each will enable you
to take advantage of promotions the cards run from time to time.
Use these in place of department or gas cards that often have a
higher interest rate.
Make sure you choose cards that are right for you.
If you pay off your balance each month, you may opt for an incentive
card that may have a higher interest rate that would not affect
you. If you do carry a balance, you may want to shop for a card
with the best interest rate and no annual fee.
As far as your question about improving your credit
score, let's first go over what elements make up your FICO (Fair
Isaac and Company) score.
- 35 percent of your score is based on your payment
track record
- 30 percent of your score is based on how much you
owe
- 15 percent of your score is based on your how long
you have had established credit
- 10 percent of your score is based on whether or
not you are taking on new credit
- 10 percent of your score is based on the types
of credit accounts you have
Consider ordering
your FICO score and credit report from each of the three major
credit bureaus, Experian, Equifax and TransUnion to determine your
current FICO score. Because each bureau may have different information
for you, your score may be slightly different with each bureau.
Review your credit reports for any errors and dispute all inaccurate
information.
Your FICO score will arrive with up to four "score
reason codes" that explain the top reasons why your score is
not higher.
Common score reasons include
- Serious late or missed payments
- Any bankruptcies, foreclosures, suits, wage attachments
or liens and judgments
- Late or missed payments are too recent or unknown
- Level of late or missed payments on accounts
- Number of accounts with late or missed payments
- Amount owed on accounts
- Balances on revolving accounts are too close to
credit limits
- Length of time credit accounts have been established
- Too many accounts with balances
Your particular FICO report "score reason codes"
may include too many accounts with balances. To improve your score
you may wish to close the accounts that you do not need. Keep in
mind that your score is also based on longevity, so close the newest
accounts first.
Other tips to improve your score:
Always, always pay your credit accounts on time. Consistent
delinquencies are definite score breakers.
Pay off large balance credit card accounts as quickly
as you can.
Something to keep in mind is that some lenders use
their own scores that often include FICO scores and other information
about you.
Keep those credit card balances low!
The Debt Adviser, Steve Bucci,
is the president of Consumer Credit Counseling Service of Southern
New England. Visit CCCS
for additional debt
advice or click
here to ask a debt question.
-- Posted: Sept. 27, 2002
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