Did you know you are being evaluated daily based on your “credit score”? Your credit score is determined by your credit profile. Your score can be affected by the amount of credit outstanding, how you pay your bills, even how often your credit file is accessed.
A poor credit score can be costly; it will mean more expensive borrowing costs; less favorable terms, even credit denial. Insurance companies often review credit scores when setting premium rates. A poor credit score could often result in higher premium rates. The logic here is that responsible people pay their bills, and responsible people drive safely, and therefore will have fewer claims.
Credit scores are based on information in five categories:
- 35% - payment history
- 30% - amount owed
- 15% - length of credit history
- 10% - new credit established in past 23-28 month period
- 10% - mix of credit (unsecured vs. secured)
If you want to maximize your credit score, follow these rules:
- Always pay bills on time. Even one slow payment will reduce your score.
- Limit your unsecured debt. Heavy unsecured debt is a strong indication of future financial problems.
- Don't open credit cards you don't need, or use. Some people just feel good having lots of credit available even if they don't use it. This will lower your credit score. It is best to have no more than one or two credit cards outstanding at a time.
- The frequency with which you apply for credit also has a negative impact on your score. Try to limit your applications for credit. It is better to have most of your outstanding credit with one lender, than spread among several lenders.
Know your credit score. Ideally your credit score should be above 700. Below 650 and you could have problems. To find the score assigned by Fair Isaac Corporation (FICO), go to www.myfico.com. There will be a small fee; however, the cost is minimal if you compare it to potential higher costs of credit.
