It’s interesting to hear folks talk about their FICO score. It’s even more interesting to hear some of the myths people believe will affect their FICO score. Most are not even sure what FICO means and yet it’s a number that rules our lives. FICO comes from the names of the founders, Bill Fair and Earl Issac, who started a data analytics company to score credit usage back in 1956. The company was founded in San Jose, CA and FICO comes from Fair, Isaac and Company. If you are concerned about your FICO score, as you should be, here are three quick tips that will help you improve your score.
Check Your Credit Report
Consumers are entitled to a free credit report every twelve months. You can contact Experian, TransUnion, or Equifax and ask for a copy of your credit report. Consider getting your report from each of the agencies to compare. If you find errors, start working to rid your report of the error. Removing errors can take time, so don’t put this off. To stay abreast of your credit score, consider signing up for a free credit reporting service such as Credit Karma, or Credit Sesame. For disclosure, Engage Advising has no professional relationship with any company mentioned, however, I do prefer Credit Karma and use their service personally. Choose the one with the features and service you like, and that works best for you.
Pay Your Bills
This one may seem obvious. But paying your bills in full and on time each month, especially credit cards, has a huge impact on your FICO score. Much has been misconstrued about the credit utilization rate (the amount of credit used). At one point, many people erroneously believed they needed to carry a 30% balance! For example, if you have a card with a $1,000 limit and you charge and carry a $500 balance without paying it off, you are utilizing 50% of your credit. Don’t focus on carrying a balance to build credit; focus on paying your bill each month. If you do start to carry a balance, consider making micropayments during the month before your due date to reduce your balance. This will help pay down your balance and it will generally be reported monthly by your card issuer, lower your utilization rate, and improve your score.
Quality vs. Quantity - More is Not Better
You don’t need to open an account with every credit card or store account for which you can qualify. Keep it simple! It’s better to have fewer credit accounts that are paid on time, over a longer period of time, in a responsible manner than it is to have as many open accounts as you can qualify for. Consider putting some of your regular bills that you pay each month on an autopay program that is automatically charged to your credit card every month (think cable, cell phone, streaming service, etc.) and be sure to pay your balance. The other benefit is that you will not forget to pay that bill. This use of credit and managing it well over time is much more important than having multiple credit lines. Think about having a Visa or MasterCard and/or an American Express card. That will give you some flexibility in the event a vendor does not accept your preferred card. An entire post could be written on which card to select, so do your homework and select the ones that work for you.
Overall, keep an eye on your credit report, pay your bills each month, and don’t open more credit accounts than you really need. There’s no need to have a department store card when you can pay be Visa, American Express, or MasterCard. As an independent Certified Financial Planner™, I can help you prepare a debt payment strategy and clean up your credit profile. Contact me and let’s get started! #talktometuesday #education #Hireaplanner #stressfree #FICO #FICOscore #savings #debt #CFPPro