Advice on Credit Scores

Not every day, but many days, my clients ask me about credit scores.  Here’s some good advice:

Your credit score is a determining factor in whether you obtain financing and at what cost.

The three-digit score is commonly known as a FICO, or Fair Isaac & Co., score. Each of the three major credit bureaus (TransUnion, Experian and Equifax) have assigned you one. The higher the score, the lower your presumed risk of default. By law, you may obtain one free report annually from each bureau online. By accessing your credit information one agency at a time, you can get a free report three times a year.

The average U.S. credit score is 694. FICO credit scores can range from 300 to 850 and are based on the length of your credit history, the mix of credit you already have, and your number of recent credit applications.

Here are some ways to improve your credit score:

•Pay your bills on time. Your payment history, including late payments and foreclosures, can count for one-third of your credit score. Accounts more than 60 days past due will be indicated on your credit report.

•Check your credit report for errors. Removing errors is one of the easiest ways to improve a credit score.

•Reduce your balances. Try to keep your balances less than 80% of your credit limit to maximize your score benefit. Start with those credit cards that are the closet to their limits.

•Keep older credit lines open. Having a long history of active accounts indicates to lenders that you are a good credit risk. Use your oldest cards regularly for small purchase and pay balances each month.

•Avoid new credit. Opening a new credit card will lower your average account age. Take on new credit only when you need it.

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