We've Got Your Number!

Last week, we talked about how important your credit score is and how it affects many aspects of your life.  But, what goes into the "secret sauce" that makes up the magic number that is your credit score?

As I mentioned in the post, What is a FICO?, no one knows exactly how the number is calculated.  There are a few things, however, that we know go into that number:

• Do you pay your bills on time?
  This is one of the most important things you can do for yourself - pay on time every time.  With free online banking and bill payment available at most financial institutions, this is easy to do.  Automate as much as you can so you don't have to worry about it.
• How much debt do you have relative to your income?
  If your income is stretched too thin for the amount you owe, chances are your score will be lower.  Work on paying down your debt or perhaps consolidating it to lower your payment.
• How long have your "trade lines" been open?
  If you have credit cards or lines of credit, more weight is given to those that have been open the longest.  If you have a bunch of credit cards, even if you pay on time and don't owe much, if they've only been open for a short while, there's really not much of a track record to judge you on.
• How often is your credit pulled?
  Each time you apply for a loan or credit card, someone is pulling your credit report. If it's pulled too many times, it's going to cause your credit score to go down - it looks like you're trying to get a lot of credit capacity quickly (which may make it harder for you to pay your bills).  Don't apply for a bunch of credit too quickly.
• How much of your credit is available?
  Looking at the overall available credit you have, is the amount you owe relatively low?  The more available credit you have, in relation to what you owe, the better your score will be.
• Is your credit report accurate?
  Mistakes happen.  Make sure you check your credit report at least annually through the only real free credit report site - annualcreditreport.com.

If your credit score is too low, make it a priority to improve it.  It can affect your loan interest rates, insurance premiums, apartment deposits, and whether or not you get that job you wanted. Don't fall for gimmicks when companies claim they can improve your credit score overnight.  There is no quick fix and it will take your commitment to improve your score.

Professional help is available, many times for free or at a nominal cost.  Here at Destinations Credit Union, we offer free unlimited financial counseling through a partnership with Accel Member's Financial Counseling.  You may also want to check the local Consumer Credit Counseling Service.