from UNDERSTANDING CREDIT by Carolyn Castleberry, CBN NEWS
Your FICO score can impact how much you pay for a loan – the lower the number, the higher your interest rate will be, and the more you will be paying each month for that loan. Your score can also impact how fast you get out of debt – the lower the score, the higher your interest rate; the higher your interest rate, the higher your monthly bills. And if you are looking for a new job, it is more than likely that your potential employer will be checking on your credit. Amazingly, your credit score can even impact whether or not you get your next job!
Following are the top five ways to improve your credit score.
1. PAYING YOUR BILLS ON TIME. Thirty-five percent of your score is payment history. Financial institutions want to make sure that you have the ability and the responsibility to repay the debt that you’ve taken on. They will be looking to make sure that you are paying your car on time, your revolving debt on time, and your student loans on time.
2. HOW MUCH YOU OWE. This is the part of the equation that hurts people the most. Thirty percent of your score is determined by the amount of credit you owe in the form of revolving debt, like credit cards. But it’s not reported as a dollar amount, but as a percentage of your total available credit. Even if you pay your bills on time, if you have used more than 30 percent of your total available credit, your score will go down. Say you have one card that you use each and every month. It has a high credit limit of $10,000 and it has an $8000 balance on it. You’re at 80% of that credit limit, and you really should only be at 30%. It’s seen as a sign that you may start maxing out your credit cards.
A NEW STRATEGY FOR TACKLING YOUR DEBT
Castleberry reports on a new strategy for improving your credit score more quickly, “This is different, something you’ve probably never heard before.” She reports that instead of following the usual advice to begin reducing debt by paying off the credit cards with the smallest balances or the highest interest rates, begin paying down revolving debt to 30 percent or less, then start paying off individual cards. To put it another way, Castleberry says, “Bring all of your balances down (to 30 percent or less). Then tackle them one by one. If not, your score will stay low and your interest rates will stay high, costing you money.”
3. YOUR CREDIT MIX. Because all credit is not the same, 10 percent of your score is based on your credit mix – how much of your debt is revolving debt and how much of it is installment debt. Having a car loan is different than having a credit card because there is an end to the loan. After making a fixed number of payments, installment debt goes away, unlike a credit card, known as revolving debt, which may never go away. When your credit score is considered and ultimately calculated, all of those things come into play. So, the revolving debt is what you want to pay off first. It is important to understand the type of credit you have and to have a good manageable mix.
4. PURSUIT OF NEW CREDIT. Think twice before opening new department store accounts, no matter what kind of discount they are offering. This includes discounted gasoline credit cards, online credit offers, and unsolicited credit card offers by mail.
5. LENGTH OF CREDIT HISTORY. Your length of credit history is important in the final equation. Financial institutions are looking at how long you have done business with a creditor and how well you have paid them.