Good Credit Score
Examine and double check your credit report: The federal law allows you to request your credit report
once a year from each of the three major credit bureaus. Get a copy of your reports from the different
agencies and review them. Note that the organization of information may vary from report to report.
Check that your identifying information is correct. Make sure that:
1. your name is not misspelled,
2. the Social Security Number there is your own and not somebody else’s,
3. your birth date is correct, and
4. all the addresses correctly reflect where you have lived.
Review your credit accounts and look out for the following:
1. accounts that are not yours,
2. payment delinquencies that are not yours,
3. debts that your spouse incurred before you got married, and
4. other account notations such as a past due debt that has already been wiped out in a bankruptcy
filing.
Review your credit inquiries and check for inquiries that are older than two years, as well as
credit applications that you didn’t authorize.
Look at your collections and public records and check for the following:
1. bankruptcies older than 10 years or those that aren’t listed by specific bankruptcy code,
2. lawsuits or judgments against you that are older than seven years,
3. already paid liens or judgments that are still listed as unpaid,
4. duplicate collections such as a loan listed under more than one collection agency, and
5. any other negative information that you know isn’t yours.
Contest any errors you find on your credit report (they affect your score). This may be done online, or by mailing in a
form that came with your credit report if you ordered it by phone.
Pay bills promptly: If you make it a practice to always pay bills on time, your credit score
will go up and you can achieve a good score. Paying bills on or before the due date – all the time – is important. Even if you have a good
credit and high credit score, one late payment will hurt.
The best way to pay bills is through one or a combination of these options:
1. Automatic payments – You can set it up so that the bill gets debited from your checking account
automatically.
2. Online payment – Most credit cards allow you to pay your bills online from their websites. This
will save you the time and effort of going to the bank.
3. Pay each bill as soon as it comes in – Doing it this way will help you get the chore out of the
way quickly, and lessen the chance that the bill will get snowed under your other papers.
Pay down the balances you have in your credit accounts: The lower the balances are on your
different credit accounts, the easier it will be for you to get a good score or improve your score. It is important to
reduce what you owe, and not just move balances around from one credit card to another credit card, to boost your score. If
you have a huge outstanding balance on your credit card, avoid using it continuously and opt to pay cash
for your other purchases, while still continuing to pay your credit card bills promptly.
This will mean changing your approach to debt payment to increase your score. You need to prioritize your debts and give
priority to the card that is closest to the credit limit. Also avoid consolidating your debts, because
that will balloon your outstanding balance, and if you already have a credit score which is good that will pull
it down.
You will need to stay well below your credit limit in order to get a good score. Maxing
out your credit card – even if you pay the entire bill on time – will have a negative effect on your
credit score.
Don't close down your credit cards or revolving accounts: Some people think that closing down
existing credit accounts will help them obtain a good credit score. Instead of helping your score, it may actually hurt
it. Doing this reduces the total amount of credit available to you, and when you add up the balance of
all your outstanding debts, the gap between your payables and the total credit available becomes closer.
If you don’t need the credit card, keep it hidden in a drawer and charge something on it
occasionally so that it will not be marked as an inactive account.
Apply for credit only if you have need for it. Don’t apply for new accounts unless necessary.
And don’t apply for new accounts at the same time; pace your credit requests. Resist the temptation to
apply for those instant accounts that department stores are offering, even if it will save you several
percent from your purchases.In general it is not a good practice for your Fico score.
Why is it beneficial to have a good credit and credit score?
Almost everything these days is bought on credit, to the point that even getting a rental car is next
to impossible if you don’t have a credit card.
Employers who are considering whether to hire potential job applicants, and selecting current
employees for promotions or job reassignments look at your credit report and score to see whether you have a good credit or not.
If you ever have to apply for public assistance or a license from the government, some government
agencies will look at your credit report and score to determine your financial eligibility.
When you apply for additional credit, the lender looks at your score to determine your
capacity to pay and your payment habits. If you have a good score and credit, you have a better chance of
getting your credit application approved.
A high credit score and a good credit will enable you to get lower interest rates and longer payment terms from
banks, credit card companies, and mortgage lenders. If you have a good credit standing and a good score, you will enjoy
many benefits that are considered no man’s land for poor credit scorers. Keeping and maintaining a good
score is important because it affects your chances of having access to more credit, especially
when you most need it.
How can I access my credit score?
The credit score used by many credit companies and lenders is the Fico score, which was developed by
the Fair Isaac Company. There are several credit reporting agencies that are authorized by the
government to give out the credit score to consumers, and they are allowed by law to charge a
reasonable fee for this service. The computations between these credit scores differ, so your credit
score from MyFico.com may differ from one you will get from the other credit reporting agencies. This
is because the information that these agencies may have about you may be different from each other.
They may also incorporate other variables into their computation of the credit score.
You can obtain your credit score online from any of the following websites:
1. Annual Credit Report Service – www.annualcreditreport.com
2. Fico – www.myfico.com
3. Transunion – www.transunion.com
4. Experian – www.experian.com
5. Equifax – www.equifax.com
How is my credit score computed?
Your credit score is based on many factors, but there are five basic sources of information that credit
rating agencies use to compute for your credit score.
Payment history: The payment history comprises about 35% of the credit score computation.
Credit rating agencies believe that a person’s record of bills payment reflects how responsible the
person is with credit. Lenders want to know whether the borrower pays on time, and when the last
delinquent payment was. A person who has fewer delinquent payments is less of a risk than one who is
habitually late. In addition, the longer it has passed since a delinquent payment, the less it affects
the credit score. The length of the delay also matters – a payment that is 30 days late is not as serious
as one that is 120 days late.
Amount owed: This makes up about 30% of the total score. The difference between the amount owed
in each account, and the total owed versus the total available credit matters. A person who maxes out
his credit card each month is considered more likely to default on his payments. The bigger the gap
between the balance and the limit, the more it helps a person get a high credit score and a good one.
Credit history length: This comprises 15% of the credit score. The longer a person has exhibited
proper use of credit, the better it is for his score. The credit score considers the age of the person’s
oldest account and the average of all his accounts.
Recently opened accounts: This variable comprises 10% of the credit score, and factors in how
many accounts a person has applied for recently, how many new accounts he has opened, how much time has
passed since he applied for new credit, and how much time has passed since he applied for a new account.
Kinds of accounts that are in use: Lenders want to see that consumers have a varied and healthy
mix of credit. This variable comprises 10% of the credit score, and is affected by what kinds of credit
they have. A person with a longer credit history would normally have one or more credit cards, a car loan,
and maybe a mortgage loan.
