6 Steps to Improve Your Credit Score

What goes into your FICO rating?

By Ismat Sarah Mangla
Ready to embark on the quest for an 800 credit score?

You’ll have to start by getting your exact score by shelling out $16 at Myfico.com. (The best free scoring tool, the report card at Credit.com, gives you only a letter grade and a range your score probably falls into.)

FICO logo (Photo credit: Wikipedia)

You actually have three credit scores, one for each of the three major credit bureaus: Equifax, Experian, and TransUnion. Mortgage lenders pull all three.

Though based on the same model, these scores can differ—typically by no more than 15 to 20 points, says FICO spokesman Craig Watts—depending on how lenders report to the bureaus and how the bureaus include that information in the report.

At Myfico.com you have the option of buying only your Equifax or TransUnion score; Experian doesn’t sell its FICO score to consumers. If you’re shopping for a home loan, get the two available to you.

Scores change whenever your creditors report new information—like your credit-card balance—so if you’re in the market for a big loan, start monitoring your number six to 12 months beforehand.

You might also find it useful to sign up for a tool like Equifax’s Score Watch, which for $13 a month will alert you when your score shifts. For those who aren’t loan shopping, there’s no need to check your number more than twice a year, says Wayne Sanford, owner of credit consulting firm New Start Financial Corp.

And if you find out you’re not in the promised land? Don’t worry. You don’t need to be fanatical to get to 780. Those in the know say these moves matter most:

1. Stay on top of your credit reports. You’re entitled to one free copy per year from each bureau. Get them at AnnualCreditReport.com, and look for misreported delinquencies, over reported loan amounts and under reported credit limits. Request corrections from the bureau in writing.

2. Pay bills within the grace period. Lenders report tardiness to the bureaus once you’re 30 days past due; if your score started at 780, it can go down to 680 after just one delinquency, says Watts. So set up payment reminders or have payments automatically deducted by a certain date.

3. Focus on paying off credit cards vs. other debt. Whittling down revolving debt will do a lot more for your score than erasing installment loans. Paying off a $250,000 mortgage when your score is already high will boost it by only five or 10 points, says Watts. But wiping away a few thousand bucks on plastic can add 100 points.

4. Stay under the magic 10%. Just paying off credit-card balances every cycle does not mean you have a 0% utilization; issuers report to the bureaus the total amount you charge each month. That suggests you should use credit cards sparingly, says Watts. Aim to spend no more than $2,000 on a $20,000 line; and put cards on ice a few months before applying for a loan.

5. Have a favorite credit card. The FICO model penalizes you for having multiple balances, so limit the bulk of your spending to one card. That said, issuers are closing inactive lines, which can hurt your utilization ratio. So make small charges to your other cards every three months or so.

6. Ask FICO what else will work for you. FICO offers a free Score Simulator tool to those who buy scores on Myfico.com, and this allows you to see how your score would respond to certain actions, such as paying down debt or even taking on new loans.

From an Aug. 26, 2010 article on CNNMoney.com. © 2011 Time Inc. All rights reserved.

Contact Susan S. Lewis or Platinum Financial for additional Naperville Debt Counseling.

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The Difference Between the Debt and the Deficit

In this age of stimulus spending and bailouts, “debt” and “deficit” are often used to describe the federal government’s financial situation. Many people use these words interchangeably, yet they have significantly different meanings. This explanation may help you understand the conversation.

Budget deficit. When the federal government spends more money in a fiscal year than it collects in tax revenue, it creates a budget deficit. In the rare instances when government expenditures are less than tax revenues, the result is a budget surplus. Budget deficits have been the norm in recent decades. For example, in the past 28 fiscal years (1982 to 2010), there were only four years in which the federal government ran budget surpluses.1

National debt. How can the government spend more than it collects? By borrowing money. The total amount owed by the federal government is called the national debt. Because the federal government guarantees the timely payment of principal and interest, many individuals, corporations, state and local governments, foreign governments, and others are willing to lend their money. Although Treasury securities pay relatively low interest rates, they tend to appeal to investors seeking lower risk.

There’s also quite a bit of borrowing between federal agencies. For example, Congress has long been in the habit of borrowing excess Social Security revenues. As a result, the national debt is divided into two categories: debt held by the public and intragovernmental holdings.

As you can imagine, there’s considerable debate over how long the government can keep borrowing to finance spending. Regardless of how you feel about government spending, you might benefit from understanding the terminology.

1) Haver Analytics, 2010

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax  advice from Susan S. Lewis CPA. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2011 Emerald Connect, Inc.

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New Rules Are in the Cards

In 2010, the federal government issued a dizzying array of rules and reforms affecting the plastic you carry in your wallet. In case you had trouble keeping track, here are some of the important developments.

Credit cards: Under the Credit Card Accountability, Responsibility and Disclosure Act of 2009, consumers must be given a 45-day notice before any significant changes affecting their account terms can take effect. Such changes include higher interest rates, fees, and finance charges. Consumers who exceed their credit limits cannot be charged an overlimit fee without their consent. Card issuers must send statements a minimum of 21 days before the due date, which must be the same date every month.1

Image via Wikipedia

Debit cards: Banks are required to have a debit-card user’s permission before they can charge overdraft fees on
point-of-sale purchases and ATM withdrawals (overdrafts via paper checks and automatic payments are exempt; banks can continue to cover them for a fee without the account holder’s permission). Card holders who agree to the fees will have their purchases authorized when their accounts don’t have sufficient funds. Card holders who don’t accept the fees will likely see their over-limit purchases declined.2

Gift cards (and certificates): Issuers cannot charge inactivity fees on cards sold on or after August 22, 2010, unless the card or certificate has been inactive for at least one year. After one year, the issuer may levy inactivity fees, but no more than once per month. The money stored in a gift card must be usable for at least five years from the date the card was issued. If a consumer adds money to the card, the amount added must also retain its value for at least five years.3

1) Bankrate.com, 2010
2) National Foundation for Credit Counseling, 2010
3) Federal Reserve, 2010

The information in this article is not intended tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional Naperville Accounting advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2011 Emerald Connect, Inc.

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