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5 Ways That You May Be Hurting Your Score

Late payments are the most obvious culprit, but there are other, less intuitive ways that you may be hurting your score. The good news is, some behaviors are easy to change. How More »

Good Credit Score

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5 Ways That You May Be Hurting Your Score

credit-utilization-ratio

Late payments are the most obvious culprit, but there are other, less intuitive ways that you may be hurting your score. The good news is, some behaviors are easy to change.

How many times have you committed one of these credit faux pas? On impulse, you open a department store credit card just to save 10 percent. Or you send your monthly card payment two days too late. These are just a few of the common pitfalls that could remove points from your all-important credit score. Find out which of the five common credit mistakes you may be making on a daily basis.

1. Paying Your Bills Late

You forget to pay a bill, or you intend to pay online, but something goes wrong. That happened to Ed Quigley, a retired Springfield, Mo., resident, in October. Quigley, who pays his Visa bill electronically, was blocked from logging onto his bank account to pay his bill due to a security issue on his computer.

Frustrated, he used a friend’s computer but realized two days later that he hadn’t received an e-mail confirmation. The credit card company refused to remove the late fee, so he plans to check his credit report later this fall to see if the late payment lowered his score. (The last time he checked his credit was four years ago.)

The highest-weighted element of the scoring model is paying debts on time — which accounts for 35 percent of your credit score. And a late payment could take 30 to 60 days to be reflected on the score, says Barry Paperno, consumer operations manager at Fair Isaac Corp., which created the FICO score.

If you miss just one payment and catch up the next month, the damage could be minor, says Credit.com’s John Ulzheimer. If you have good credit but miss a payment that turns into a collection or charge-off, your credit score could go down by 200 points in a worst-case scenario, he says. “It’s kind of the no-brainer. Everybody knows it, and it is the one that matters most,” Paperno says. “Don’t even be a day late.”

If you are late a couple of times, it might be a good idea to request a copy of your credit report from the three major crediting bureaus to see what effect, if any, your late payments have had on your credit score.

2. Opening Too Many New Accounts

Putting a new piece of plastic in your wallet impacts your credit score. “Just opening a new account can bring down your score slightly,” Paperno says. An inquiry by someone other than you – like a potential creditor, for example – can knock off a few points.

In a worst-case scenario, says Ulzheimer, someone with good credit could see their score drop 10 to 40 points if they have excessive credit inquiries. But if someone has bad credit, the damage could be five to 30 points.

3. Not Having the “Right” Cards or the “Right” Payment Strategy

There’s nothing wrong with using private label cards (cards used only at a specific retailer) or gas cards, but not having a bank card could hold your score down. “Some things [like bank-issued credit cards] are a little better for your score than others,” Paperno says.

He adds that consumers can improve their score by being smart about how they allocate their debt payments. “Keep in mind that if you have high credit card balances, paying those down will improve your score more than doubling up on your mortgage payment.” Monitoring your credit score on a regular basis will illustrate just how effective paying down your debt can be for score improvement.

4. Closing Out Accounts

Don’t be so quick to close an account, even if you’ve paid the card off or are frustrated with the creditor’s policies or procedures.

Danielle Beauparlant Moser, an Asheville, N.C., career coach, closed her Air Tran Visa account at the end of September because of fraudulent charges. “My recourse was to close the account. I felt like I had no other choice,” says Moser, who had her card for one and a half years. “Why would I anticipate that closing a credit card that’s fully paid off would impact my credit score? I had no idea.”

Those in Moser’s situation, or those seeking to streamline their finances by having fewer cards, end up lowering their total credit line. Your score strongly reflects the relationship of your balances to your credit card limits, which accounts for about 30 percent of your score, Paperno says.

“By closing an account, you´re actually lowering the amount of available credit you have. You’re also decreasing your average length of credit history,” he says.

It depends on each individual consumer, but in some cases, closing an account could lower a score by more than 100 points, Ulzheimer says.

5. Losing Track of Your Credit Limits

Purchasing a big-ticket item using a “buy now, pay later” financing deal could translate into a ding on your credit score. Or, using a credit card for a major purchase and continuing to make daily purchases, even as small as a cup of coffee, could get you closer to your limit, causing your credit score to lower. Those daily decisions add up.

That’s why it’s so important to learn about these credit mistakes and avoid them, says Cunningham. Your first step toward avoiding credit score pitfalls is to read over your credit reports to see which actions are making you lose valuable points. You may think you’re doing something financially savvy when in fact you’re damaging a crucial figure used to help you land a loan — or even a job.

By following these five steps, and checking your credit report and score on a regular basis, you should be in good shape for any future credit endeavors.

Source: Experia

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How to Boost your Credit Score

Good Credit Score

According to Experian, America’s largest credit bureau, the national average credit score sits at 693. However, Linda Call, vice president of the Richmond, Virginia-based mortgage brokerage firm, Berkley Mortgage, says that in today’s market, those even slightly below average could be in trouble. “With the economy still recovering, 650 is the new minimum score for getting a loan, but people really need at least a 700 to get something with decent rates,” Call says. “It’s very challenging right now for anyone with a low credit score.”

Here are six ways to give your credit score an extra boost.

#1 – Do a balancing act

In a tough economic climate, keeping your credit card balances under the limit isn’t enough. According to Scott Scredon, director of public relations for the Consumer Credit Counseling Service of Greater Atlanta, GA, simply maintaining a balance that’s close to your limit could weigh down your credit score. “If you carry a balance on your credit card, you need to make sure the difference between your credit limit and your current balance is 50 percent or less, so if your limit is $1,000, you need to keep your balance at $500 or less,” says Scredon. “Not using all of your credit is a signal to card companies that you’re managing your credit properly.” Scredon adds that keeping an even lower balance – 30 percent or less – may boost your score even more.

#2 – Don’t be late

If you see trouble on the financial horizon, nip it in the bud, says Scredon. “Making a late payment could affect your interest rate, not just on the credit card you’re paying late on, but on all your credit cards,” he explains. “If you know you’re going to have trouble making payments, get in touch with your lender or credit card issuer and try to work something out. We are hearing more and more from our counselors that lenders and credit card companies are willing to look at alternatives for you.” Since even one late payment could lower your credit score – and stay on your credit report for six years – preventing disaster before it happens can protect your credit.

#3 – Diversify, diversify

“People don’t realize that 10 percent of your credit score is determined by what types of credit you use,” says Gail Cunningham, marketing director for the National Foundation for Credit Counseling. “That’s determined not only by how you manage revolving debt like Visa, MasterCard, and department store credit cards, but also how you handle fixed payments like your mortgage payments and car payments over time.” Instead of putting long-term purchases on credit cards, Cunningham recommends taking out short-term, one to two-year loans in order to build a diversified credit portfolio. In addition to receiving lower interest rates and more flexible payment terms, consumers who use loans over cards also build positive credit and may gain better credit terms in the future.

#4 – Prioritize your debt

Those who are already in the plastic pit can begin digging themselves out by creating a debt attack plan. Start by making a list of all of your credit debts, then pick out which is harming you the most. “If you have a card where you owe more than 30 percent of your credit limit, ‘power pay’ that one down first to keep your credit score intact,” recommends Cunningham. “After that, I tell people to tackle your smallest bill first while making minimum payments on everything else, and once you’ve paid it and have that sense of accomplishment, move on to the next one.” By focusing your financial resources on eliminating one problem debt at a time helps improve your chances of sticking with your debt attack plan.

#5 – Stay positive

Consumers in dire credit straits may be able to boost their score simply by showing credit scoring services what they’re doing right. “If the consumer has positive histories in things like rent and utilities, adding those histories can greatly help the credit score,” says Mark Guimond, executive director of the American Association of Debt Management Organizations. “There are companies designed to get positive information on your credit score and that can have a significant impact,” he says. Organizations like PRBC in Annapolis, Maryland can help consumers add day care, insurance, rent, and cable credit histories to their score and set up online bill pay services to make sure those debts keep getting paid on time.

#6 – Research the bargains

Credit inquiries can be a major obstacle that prevents consumers from getting the lowest interest rate on a new loan. While inquiries on your credit report can lower your score as much as five points, according to Lendingtree.com, consumers have a 30-day window before choosing their loan when all mortgage and auto loan inquiries only count once. An easy way to avoid racking up inquiries on your account, says Guimond, is to comparison shop as much as possible before filling out a formal application. “Don’t just apply to ten different lenders, talk to lenders, talk to customer service people, get as much information as possible,” he says. “It pays to do the research.”

Checking your credit score and report on a regular basis allows you to track your progress, verify your card balances are decreasing, and offer momentum to stay the course.

 

Source: Experia

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