It is important to understand what your FICO score is comprised of. FICO (Fair Isaac Corporation) uses information from your credit reports to create a score, or grade. The range is from 300 to 850. The information on the reports gets "weighed" as follows:
35% Payment History. (paying on time, applies to any bills such as mortgage, car loan, credit cards, home equity loans, but NOT to utility bills, unless they go in to collection.
30% Amounts Current Owed. This compares the amount of credit you have available with the amount of credit you are using. If you have $30,000 available and are using $25,000, your score will be more negatively impacted than if you were only using $5,000.
15% Length of Credit History. The longer you have an account open, the less of a credit risk you tend to be, which is great for your FICO score.
10% Newly opened accounts and credit inquiries. Folks with newly opened accounts tend to be riskier, and a credit inquiry indicates that someone is looking at your report and that you're shopping for new credit. It won't lower your score if you married spouse opens an account at Nordstrom, but it will affect their account, and could result in higher interest rates on other credit accounts held jointly....like a mortgage.
How to improve your score? It's really pretty simple...
- Pay off your debt
- Make payments on time - even if you can only pay the minimum
- Fix any errors (credit reports should have information on how to accomplish this)
- Make automatic payments
- Pread your credit out - it's better to have small balances on a few cards than it is to have one big balance on one card. HOWEVER - don't go open new credit accounts to spread the balances around - this only applies to accounts you already have!
For more tips, it is wise to speak with a qualified financial advisor....perhaps our strategic alliance partner Amy Krause at www.amykrause.com
And, remember the post from a few weeks ago on holiday gift giving?? Avoid the temptation to charge presents!
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