Raise Your Credit Score!What the heck does a section on credit score have to do with trading stocks? Trading is about making money. A good score is about saving money. I’m not talking about saving a few hundred dollars. I’m talking thousands. Unless you just bought the Bear Stearns company, when was the last time you saved than much money? This is how you raise your credit score.
The FICO score (Fair Isaac Credit Organization) is a three-digit number that predicts how likely you are to pay your debts. Since most cash strapped Americans won’t tell MasterCard they barely have two nickels to scrap together but want to charge that HDTV anyway…… FICO will. The FICO credit score tells lenders whether to lend you money and at what interest rate. If your background has episodes of missed or late payments, lenders want to be compensated for that risk. Hence, you’ll pay a higher interest rate than< i>Mr. I Pay My Bills On Time.
FICO is a formula. Five factors are used to calculate your credit score. Here’s what goes into the recipe: • Payment History : Do you pay your bills on time? If not are they a few days late or a couple months. Liens, bankruptcies and debt that have gone into collection are big negatives. Weighted- 35% • Debt Value : How much is your total debt and how close are you to maxing out your individual cards. Weighted- 30% • Account Aging : Besides wine, this is one of the few times older is better. The longer you have had an account open, the more favorable it is to your credit score. Weighted – 15% • Application Date : Opening too many accounts in a short period of time is a red flag. Weighted- 10% • Credit Type : FICO likes variety. It scores better when you have installment loans, mortgages and credit cards as opposed to only credit cards. Weighted- 10%
Thing about credit scores is many people don't want to look. My friend, you have to look. The sooner you know, the easier it is to improve. Order your credit reports fron the big three: Experian, TransUnion and Equifax. Use all three because they may be slightly different. Reporting mistakes happen all the time. Accounts you thought were closed are still open, accounts you never applied for are listed…..hey, it happens. If there are errors, they can be disputed in writing or online. Federal law requires credit bureaus to investigate all inquires and respond to you in 30 days. Getting them to act may take some persistence. FICO scores range from 300 to 850. More than half of the U.S. scores 700 or better. If your score is over 720, you’ll receive preferential rates. If you score below 600 you’re considered high risk.
There is no secret formula to raising your credit score. However, if you want some insight into the obvious, here it is: • Don’t Be Late : A late payment can lower your score by as much as 75 points. Creditors usually do not report late payments to the credit bureaus unless they’re at least 30 days overdue. Don’t mess around with these guys. Pay on time. • How To Pay It Down : If you’re paying your debt without problem, focus on the cards with the higher interest rates. If you need to raise your score, give priority to cards that are near their credit limit. Transferring all your debt to one credit card will not improve your score. Maintaining smaller balances on more cards are preferable. Keep away from the credit limit. • Don’t Close The Good Ones : Old accounts in good standing help improve your credit score. Instinctively you might want to close accounts you rarely use. Don’t, this usually hurts your score. If you have questions about your credit there are many versions of the truth. Here are answers to frequently asked questions. Now you don’t have to ask your friend and hope he knows what he’s talking about: • Will checking your own credit report damage your score? No. Your score is not penalized. It is recommended to check your score once a year. If a house is in your future, check it now. • If I never use a credit card, will that prove I’m solvent? Lenders like people who borrow. Use your credit card once in while but pay it off. It builds good credit history. • Is credit counseling a negative? Getting advice from a credit counselor will not affect your credit score. If you take part in a debt consolidation plan or a counselor negotiates lower rates…….that will impact your score. • What else should I know about credit counseling? Credit counseling will not lower the amount of money you owe. It will lower your interest rates somewhat and make the payments easier. Credit counselors exist so credit card companies can get back their money. That’s not a bad thing. After all, you borrowed their money. However, if you’re having trouble making debt payments now….a lower interest rate may not help any. There are options. Debt settlement or bankruptcy is two of them. It will go as a negative on your credit report. But if times are bad, and only you can define “bad”………it’s time to consider other options.
As you can see, there are no secrets to raising your score. The important thing to know is that it exists. The amount of debt you pay on your next big purchase is directly affected by your score. A couple percentage points could mean thousands of dollars over the long term. Don’t forget to pay your bills on time because I’ve seen some walloping late fees. I know from experience. Although I’m sure they don’t mind me being late once in a while. Go From Credit Score To Financial Planning
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