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When trying to keep a good credit score or attempting to repair your credit there are certain things you need to keep in mind that can throw off your credit score. It is important to keep your credit score in the forefront of your mind, at least on a regular basis, as a good credit score is now paramount to receiving loan and credit approvals.
No longer will it be easy to get a loan with bad or no credit, loans and credit approvals will be hard to come by and those who will finance individuals with bad credit will charge the highest rates and additional fees allowed by law.
While the middle class struggle gets harder, the lower middle class and below will be in even more dire straits.
Therefore, watch your credit score!
What is a credit score?
A credit score is a mathematical model consisting of numerous variables used to estimate one’s credit risk. The most commonly used model is called FICO ® (named after its creator, the Fair Isaac Company).
Your FICO® credit score is used to evaluate your creditworthiness by giving you a certain amount of points based on the information contained in your credit report and your debt-to-income ratio.
The highest score a person can receive is 850; the lowest is 300, but generally, a score of 720 or higher means your credit is considered to be good (but it could be improved).
A score below 660 means that you might have trouble obtaining credit or you will definitely have to pay a higher interest rate for the financing you do receive.
While paying your bills as agreed and not accumulating too much debt will likely result in an excellent credit score, there are certain activities that will lower one’s credit score.
1. Applying for a new credit card, mortgage or car loan.
Unless you do not have much of a credit history and have not established a credit rating yet, applying for a new credit card, a mortgage or auto loan can lower your credit score by about 10 or 15 points.
If you have not used credit much or have a short credit history, applying for a new credit card, mortgage or auto loan could raise your credit score by ten or 15 points.
2. The type of credit you have can make a difference in your score.
Major bank credit cards with good payment records are better for your score than a department store card.
Loans or credit established with a finance company, even when you have a good payment record, do not carry as much weight as a major bankcard.
A major bankcard says you are in the mainstream of credit where credit limits can reach the stratosphere with a good payment record.
A revolving credit card such as with a department store generally carries a very low credit limit.
One who seeks credit from a finance company may be considered in the high-risk category and ineligible for the mainstream credit market. Installment loans such as car loans and mortgages have a positive effect on your credit score although a high loan balance-to-value ratio can detract from your score.
2. Missing a monthly payment can knock as much as 35 points off your credit score.
There is nothing in the FCRA that requires any company to report either positive or negative information.
If a company you do business with does not report to at least one of the three national credit bureaus, contact the company and ask that your good record be included in your credit report. Also, some companies that report on-time or late payments may not report the maximum credit available.
The ratio of credit used to credit available factors into your score.
If you use credit wisely and do not spend to the maximum limit, you deserve the benefit of this positive data. If companies you do business with refuse to report to one or more of the credit bureaus and/or do not report the maximum credit available, take your business elsewhere.
And let them know why you are moving on.
Companies who lose customers because of their irresponsible business practices need to hear from you.
3. Filing for bankruptcy can knock as much as 200 points off your credit score if your credit score is high.
Filing for bankruptcy is a serious decision. Proceed carefully, and only after talking to a legal professional.
4. Max out your credit cards.
Points are given or taken away based on the amount of available credit used.
Certainly, using the maximum amount on your credit card and paying only the minimum each month can lower your score. But, using a large percentage of your available credit each month, even when you pay the bills faithfully, can detract points if you are carrying a high balance at the time your credit history is scored.
Maxing out your credit cards can knock off anywhere from 20 up to 120 points off your credit score.
A good rule of thumb is to never carry credit card balances that are more than 25% of your total credit card limit.
Do You Know What Your Credit Score Is?
If your FICO credit score is 750 or above, you are considered to be an excellent credit risk and should not have a problem obtaining credit and will likely be offered financing at the lowest available rate.
Your goal should be to obtain a 750 or higher FICO credit score so that you can save thousands on mortgage and car loans and credit cards.
How to Order Your FICO® Credit Score
The market for “scoring products” is now big business.
A simple Internet search using the words “credit score” reaps millions of sites. Many of these sites sell packages of credit products that can include not only credit scores but also credit reports, credit monitoring services, and identity theft insurance.
Some searches may even lead you to fraudsters whose aim is not to sell you a credit score but rather to steal your personal information. The best way to purchase your score is through one of the national credit bureaus.
The national credit bureaus are:
You can also purchase your score if you order your free credit report through the official online source established by the FTC for this purpose. The official website is: www.annualcreditreport.com/cra/index.jsp
The credit bureaus also offer a stand-alone score.
You may purchase an educational score, now required by FACTA, or the official FICO score through the credit bureaus.
You can also purchase your FICO score through the Fair Isaac website at www.myfico.com. Scores purchased through the Fair Isaac site come only as a package, requiring the additional purchases of credit reports or monitoring services.