Ring in the new year with a high credit score
You can make all the New Year’s resolutions you want about exercise and diet, knowing full well that you’ll probably un-resolution them before February. But there is a resolution you should keep, which is just as important as eating your greens and showing up at the gym, and that’s improving the health of your credit score.
Having a good credit score is increasingly becoming more important in your ability to borrow money at favorable rates on mortgages, car loans and improving your eligibility for the best credit cards.
FICO credit scores are between 300 and 850, and up until now, the average person couldn’t determine exactly what factors were considered in establishing the score. However, a few months ago FICO provide some insights into the common traits of the more than 50 million people who are in the upper tier of scores and how they got there.
Having good credit doesn’t mean having no debut. In fact, the typical high scorer has an average of four loans or credit cards that are regularly used. About a third of these people owe more than $8,500 on nonmortgage accounts indicating a fair amount of debt. Also 13 percent of high credit score holders have zero balances on their credit cards. In scoring a potential borrower, lenders are not looking for someone with no debt, but rather an individual who shows they have the ability to manage debt.
It is also helpful to have credit available that you actually don’t use. In fact, this accounts for 30 percent of the credit score calculation. FICO high credit scorers use an average of only 7 percent of the credit available to them. It’s not a bad idea to open some accounts or ask for a higher credit limit just to keep the credit available to you elevated.
Without question, the most important thing you can do to keep your credit score high is to pay your bills on time. This is the biggest factor in evaluating a credit score with high achievers averaging 96 percent of never missing a payment. Making a payment late is not the end of the world, and your credit score won’t suffer unless you are 30 days or more late, which is when the red flag goes up. Also, assume the responsibility of making sure your bills get to you by verifying your mailing and e-mail address with everyone who may be sending you a bill and keeping a monthly calendar to follow-up if something is missing.
Finally, although this is something you may not be able to do anything about, the typical high scorer is middle aged or older. Basically these individuals had accounts averaging 11 years with some accounts over 20 years old. If you are in your 20s or 30s and just starting to establish credit, try getting on to a joint account with your parents or other older family member or being added as an authorized user on an already established account. This is a faster way to establish good credit. Just make sure that the person you’re going in partners with has a good credit score.
Having a good credit score is even more important in our current financial environment where lenders want squeaky clean borrowers more than ever before. Get the New Year off on a positive note and make your New Year’s resolution mailing those bills out on time. Just don’t leave them next to your gym shorts and granola bars. Happy New Year!
