Credit
Establishing & Maintaining a Good Credit Score
It’s important to remember that your credit score is not part of your credit report. Lenders use it to assure that their money is going into safe hands, and they can obtain it from the national credit reporting agencies — Equifax, Experian, and TransUnion.
There are several credit scoring systems with different numeric scales, but the FICO score is the most popular and widely used. Developed by the Fair Isaac Corporation, FICO scores range from 300 to 850. A score above 750 is considered excellent, while one below 600 indicates high risk to lenders. A lower FICO score can give a lender reason to impose higher interest rates — or to reject your application entirely.
Factors That Influence Your FICO Score
In today’s economic landscape, understanding the factors that affect your credit score has never been more important. The factors that influence your FICO score are:
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Fix any inaccurate information. This is one of the most important things you can do to maximize your credit score — up to 79% of credit reports contain errors.
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Update old accounts.
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Request that old inquiries be removed — specifically those older than two years.
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Pay your bills on time. Delinquent payments — even if only a few days late — and collections can have a major negative impact on your score.
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If you have missed payments, get current and stay current. The longer you pay your bills on time, the better your credit score. Older credit problems count for less, so poor credit performance won’t haunt you forever. The impact of past problems on your score fades as time passes and as recent good payment patterns show up on your credit report.
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Be aware that paying off an accurate collection account will not remove it from your credit report — it will stay on your report for seven years.
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Keep balances low on credit cards and other “revolving credit.” High outstanding debt can affect your credit score.
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Pay off debt. The most effective way to improve your credit score in this area is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your score.
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Don’t close unused credit cards as a short-term strategy to raise your score. Maintain your accounts over time — the longer your credit history, the more it helps your credit score. Closing older accounts can actually lower your score.
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Don’t open new credit cards you don’t need just to increase your available credit. Apply for and open new credit accounts only as needed. Opening accounts for the purpose of providing a better credit picture probably won’t raise your score — and in some instances may even lower it.
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If you’ve only been managing credit for a short time, don’t open a lot of new accounts too rapidly. New accounts will lower your average account age, which has a larger effect on your score when you don’t have much other credit information. Also, rapid account buildup can look risky if you are a new credit user.