We’ve all seen them, FICO scores on the back of our credit card statements with a history chart and a number for each month. But what are they? What do they mean? Why should I care? Can I improve my credit? Let’s get into it!!
A FICO score is a number that represents to lenders how risky you are to lend to. FICO scores look at payment history, length of credit history, how much debt you are currently carrying, types of credit accounts and what new accounts you have. FICO scores range from between 350 (low) all the way to 850. In general, a FICO score of 660 or higher is considered a good credit score but to get the best of rates, many lenders require a 720 or higher. This difference in rate could amount to .25% depending on the loan. That can add up to thousands of dollars more spent for the same home. Everybody likes a great deal right? Your credit score impacts your monthly car payment and can help you qualify for same-as-cash deals that would normally cost you interest. In short, your credit score has an impact on everything that you don’t buy with cash! It’s worth it to know your FICO score.
So how do we protect it?
Whether you are buying your first home or refinancing the one you have, knowing your score and being proactive to improve and protect it is prudent because the money you save will be your own! It’s best not to have a lot of inquiries on your credit score. An inquiry is simply a count of how many times your credit has been run to extend credit to you. Rental inquiries don’t really factor into this because a landlord isn’t extending you credit. But, if you applied for furniture for your new home – that’s an inquiry. If you are trying to put a new car in the garage – that could be several inquiries!! Car dealers like to run credit over and over again. Each time a new inquiry shows up on your credit it’s taken into consideration by the FICO calculator. Is it the first inquiry in 12 months? If so, then there is really no impact on your score. But if you should have nine inquiries in the course of the past 12 months – then yes your score, likely will be reduced. The best defense sometimes is a good offense.
So how do we improve our FICO score?
- Pay your bills on time. Use your bill payment service at your bank to make sure payments are received on time.
- Don’t max out your credit. The best practice is not to keep a balance, but if you do then keep the balance below 1/3rd of the credit limit for that card.
- Look out for errors. Many credit cards offer the ability to see your score each month. If the score changes drastically and you are not sure why, have your credit run so you can check for errors or see if someone else may be using your card number. Based upon a study by the Federal Trade Commission (FTC), 26% of people identified at least one error on their credit report. https://www.myfico.com/credit-education/credit-reports/fixing-errors
- Don’t close cards that have been paid off. If that line of credit is closed, then you lose the great credit history and it may actually cause your score to drop. Just leave them with a zero balance – that’s perfectly fine. You will need to use the cards periodically to keep them active though. Otherwise, the card issuer may just close it for you!
You don’t have to do this on your own. We are here to help you but many times just following these rules can make your score improve in as little as 60 days! Contact us today – we are happy to help!! 619-469-3638