Credit Scores on the Line - Score Wars in the New Millenium

It’s war out there. There are a lot of ways you can load credit scores in your favor. Here is some ammunition for winning the score wars.

Check the status report:
Accidental entries and mistakes in credit reports are common. Keep track of your reports regularly. You never know when you might be a victim of identity theft. Even a silly typographical error can cause your credit score to plummet.

Payback:
Please pay back on time. Doing so avoids interest; if you can’t pay in full at least see that you pay the minimum amount required. Payment history accounts for 35% in the FICO score. One late payment and you could dent your score big time.

Collector woes:
Do not become a card collector. Stamps or coins are a better idea. More cards that you go around acquiring indicate an increased need for credit and if you do that with rapidity, your score plummets. This is because the FICO score takes into account the amount of new credit that you acquire. It accounts for 10 % of the score.

Another problem with too many cards is that it becomes difficult to keep track of things. One late payment is all it takes to get a seven year bleb on your report card.

Closing cards:
If you have quite a number of balances and you decide that you would like to consolidate your debts on a single card or two, think again. While it may seem sensible to move balances to newer cards with better interest rates, there is a problem if you do this without thinking things through. Length of credit history accounts for 15 % of your FICO score. If you close your old card in favor of an enticing new card, you could seriously damage your score.

Even if you keep your older cards alive and close your newer cards you still run the risk of damaging your credit if you are not careful. What FICO looks at is your credit utilization ratio and this is part of their second most important contributing parameter – amounts owed which accounts for 30 % of your credit scoring criteria.

What credit utilization ratio means is the ratio of credit used to credit available. This should not be more than 30%; if you can keep it to 10% even better.

Let us say you have five cards carrying an outstanding balance of 2,400 $ on each card with a credit limit of 10,000 $ on each card. Since you are utilizing your cards only up to 24% you are safe. Now say you decide to close two cards. Then you will have three cards with an outstanding debit balance of 4000$ on each card for a limit of 10,000$ on each card. This means you are using your all three cards up to 40% of their limit. This is not good for your score. The money you owe remains the same, however your credit utilization ratio has changed and your credit score has suffered.

Systematic failure:
Think of something. In times when you borrowed money from co-workers, friends, or family, how did you pay them back? Think carefully. Did you pay all of them bit by bit or did you pay the person whom you borrowed money first and then went on to clear the next person’s loan.

This may have been good in that situation, but on the FICO planet you may lose credit with this kind of behavior. What happens is that in your sincerity to pay back the first loan, you often get late paying your other loans. This is very damaging to your credit score. The right way is to pay at least the minimum amount required each month.

Preloading in order to pack a punch:
Prepaid cards are an excellent way to start building credit or to repair damaged credit.
This is what you do. If you were going to purchase something with cash, use a prepaid credit card instead. You have just re-routed the cash and in the process improved your credit history.

Using Supplements:
Getting someone to co-sign a loan with you or make you a joint holder of a credit card can do wonders for your credit score. I won’t go into details here. I have written more on the subject before. In short, you land up stamping your report with someone else’s credit behavior. Just see that the person with whom you are joining hands is someone who has good credit and exhibits good credit behavior.

Use it or lose it:
Please use your card, don’t just own one. The greater your use, the greater your credit payment history, greater the history – better a reference point; and if you have been responsible in your behavior, then better the FICO score.

Play smart
The results of your credit behavior take some time to reflect in your report. If you make a big purchase and pay back in full, be sure that the record of that discharge of financial responsibility on your part finds its way on your report in time. Now you cannot do that for you have no control on the matter, but what you can do if there is such a scenario is that you wait for at least sixty days before applying for a loan, so that the correct complete status is reflected in your report and not one that has not been updated.

May the force be with you!

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