Tag: credit

What Your FICO Score Means

What your FICO score means

Just as the understanding of the value of a dollar comes with time, the importance of your credit score often evades us until we are deciding to buy a car or purchase a home. The gravity that a credit score holds is substantial. These scores influence the credit available to you and the terms that go along with it, such as interest rates. When looking to purchase a car or home, lenders rely on the consumer’s credit scores for an understanding of the risk they take on by loaning money.

While there are different credit scores, the most widely used and accepted is the FICO score created by Fair Isaac Corporation. Using the information provided by one of three major credit reporting agencies (Equifax, Experian, and Transunion) FICO creates a credit score ranging from 300 to 850, with the higher number representing lower risks for lenders and insurers.

How exactly do they determine a consumers credit score? FICO analyzes five main factors, which each have a different impact on the score:

  • Payment History (35% of the FICO score)
  • Debt/amounts owed (30%)
  • Age of credit history (15%)
  • New credit/inquiries (10%)
  • A mix of accounts/types of credit (10%)

While the exact number of your credit score can be distracting, it is more beneficial to focus on the areas that require work, rather than feeling overwhelmed by your rank on the credit range. Let’s take a more in-depth look at the five main factors considered by FICO when determining consumer credit scores:

Payment History

This is simply how well does a consumer do with paying their bills on time. Credit reports show when consumer payments are submitted for lines of credit, and it specifies how long payments took to come in: 30, 60, 90, 120 or more days late. Since payment history is the most significant component of a credit score, it is essential to get all credit line payments in as soon as possible.

Accounts Owed

This refers to the amount of money a consumer owes in whole. Having a lot of debt doesn’t necessarily have a significant impact on your credit. Instead, FICO looks at the ratio of money owed to the amount of credit available. Put simply, do not max out your lines of credit.

Length of Credit History

The longer a consumer has had credit, the better this element of their score will be. FICO looks at how long the oldest account has been open, the age of the newest account and the overall average.

New Credit

This refers to recently opened lines of credit. If a consumer opens a bunch of new accounts in a short period, this signals FICO that there is a higher risk, which lowers the consumer’s credit score.

Mix of Accounts
Just like stockbrokers want to diversify their portfolios, consumers want to expand their credit portfolio. With a healthy mix of retail accounts, credit cards, installment loans, such as a car loan, and mortgages, a consumer has ensured a higher FICO score.

Great Ways to Boost Your Credit

Great Ways to Boost Your Credit

 

One of the many ways we are “defined” by society, is by our credit score and history.  Your credit information has a very significant impact on not only your personal finances but also a majority of your life and different events you may experiences, such as buying your first home.  The first step in credit management is establishing your credit score. Once this is done, it’s important to remember that you’ll want to continue to build your credit up in various ways; you can do this by gradually making small credit charges or larger transactions such as financing or leasing your first vehicle.  Always remember that any credit charges you make need to be paid back within a specific period of time, and late payments can negatively impact your score, as well as result in late charges and higher interest payments. Here are some great tips for boosting your credit:

Make Payments On-Time

Whenever you make a credit charge, you should keep the payment due date noted somewhere where it will help you remember.  Credit cards are a great tool for boosting your credit when they are used properly; however, they can do more harm than good when they aren’t managed correctly.  Any credit card charges you make should always be paid on early or on time. This will give you a good rapport with the credit company, as well as boost your score.  You’ll also avoid any late charges, and you’ll have a better chance of getting future credit cards and other purchases with low-interest rates.

Avoid Making Minimum Payments

While minimum payments are an option that you’ll usually see when you’re making a payment, it’s best to pay your bills in full if you can.  Minimum payments tend to extend your payback period, as you’ll incur interest that can sometimes make a minimum payment useless. Do your best to make any payments in full.  If you’re unable to make them in full, try to pay back well over the minimum, to tackle the balance the best you can.

Address Any Late Bills or Payments

Late bills or payments can happen sometimes.  As humans, we forget, and it isn’t uncommon. You may have changed bank accounts or hit a financial hardship that caused you to get set back on some payments.  If that’s the case, once you’re in a better financial position, work on getting any late payments or bills settled as quickly as possible. This will help bring your credit score back up if it’s taken a hit recently.

Credit Card Do’s and Don’ts

john j bowman jr accountant - credit card

Credit cards are like keys; they open doors to affordable mortgages, nice cars, low-interest loans, and ideal rental options. As useful as these thin plastic cards are, though, they aren’t without their dangers. When over- or thoughtlessly used, credit cards can cause consumers to spiral deep into debt, and ultimately have a negative impact on a person’s ability to borrow money. To (safely) get the most out of a credit card, you need to use them properly. Here are five do’s and don’ts to using credit cards.

 

Don’t Carry a Balance

 

Credit card companies charge high monthly interest rates. While paying the minimum balance may seem like a great idea, it won’t do much to bring down the balance. It’s important that credit card holders pay as much money as possible each month. Depending on the card’s interest rate, the average card owner will save anywhere from 10% to 29% a year in interest.

 

Use a Credit Card Instead of a Debit Card

 

Again, there is nothing wrong with using credit cards. The issue is the irresponsibility of credit card use. Credit cards and debit cards are not the same. Credit cards offer a greater level of fraud protection. In situations where fraud occurs, it’s easier to get a refund with a credit card.

 

Avoid Cash Advances

 

Cash advances may seem like a great idea. However, cash advances do not have a grace period. An automatic fee is added each time a person uses this card feature. Also, cash advances come with higher interest rates than the rest of the credit card balance.

 

Don’t Use All of the Available Credit

 

The amount spent on a card should not exceed 20% to 30% of the available credit limit. Using any more than this will affect the FICO score. Even if the balance is paid off in full, card issues do not like when borrowers reach their card’s credit limit.

 

Take Advantage of Balance Transfers

 

Credit cards with high annual percentage rate cost consumers a lot of money. One way to alleviate some of these costs is by taking advantage of balance transfers. Some cards allow consumers to transfer the balance without paying a fee. The advantage of transferring the balance to another card includes paying lower interest fees.

 

Credit cards are useful. When used correctly they are convenient financial tools. Using these cards irresponsibly can lead to financial issues that may last years. Hopefully, these tips will help consumers avoid the pitfalls of credit card usage.

Tips for Keeping Your Credit Score Healthy

John J Bowman Accountant - Credit Score

Using a credit card is deceptively dangerous. When the money you spend isn’t draining directly from your checking account, it’s easy to assume that you have more than you do – and to find yourself under a mounting pile of debt. Using a credit card irresponsibly can lead you into debt, poor credit, and financial troubles down the line.  Maintaining a healthy credit score is essential if you are interested in taking out loans or if you prefer having the ability to have a credit card in your name. There are a number of benefits to having a healthy credit score; a positive score makes securing an apartment, car, or even mortgage far easier than it would be otherwise. Follow these tips to keeping your credit score high regardless of how much income you earn or debt you carry.

 

Pay Your Credit Card Bills On Time

 

Whenever you make a purchase using your credit card it is imperative to pay your bill off in its entirety as soon as it arrives. Paying off your credit card in full each month is one of the quickest ways to build your credit without putting an overdue burden on yourself.

 

Maintain a Low Credit Card Balance

 

Keep a low credit card balance each month while always remaining self-aware of your current budget and expenses whenever you are making a purchase using your credit card. Maintaining a low credit card balance minimizes the risk of you being unable to pay your credit card balance in full once your bill arrives. The higher your credit card balance becomes, the more difficult it is likely to be to make full payments if you are on a set or limited income that does not fluctuate.

 

Use a Credit Report Monitoring Service

 

One of the best ways to protect your credit score and to keep it healthy at all times is to use a credit report monitoring service like Credit Karma. Credit report monitoring services provide you with a complete overview of your credit reports as well as your scores according to the top credit reporting agencies in the country. Using a credit report monitoring service is a way for you to ensure you are not missing any payments and that your credit score is exactly where you expect it to be before making any future financial decisions.

 

Taking the right steps to maintain a positive credit score is extremely useful when you want to improve the quality of your financial standing in the future. Whether you are currently in debt or building your credit score from the ground up, implementing the right tips along the way is essential to guarantee success.