Start Fixing Your Credit Score Today

Whether you like it or not, a good credit score is essential. Your credit score factors into everything from insurance rates, to whether you get the job you applied for. A good credit score is also needed to buy a house, obtain cell phone service, rent an apartment, and buy a car.

Of course, life happens, and your credit score can plummet. Perhaps you lose your job and can’t pay your rent or mortgage, or you have unpaid medical bills that have gone to collection. Or maybe you haven’t yet established your credit.  But the good news is that there are ways to get your credit score into the fair or good category. Here are a few things you can do once your financial situation has stabilized:

• Pay your bills on time. There’s nothing you can do about past due balances that have gone to collection short of paying them off, but going forward, do everything in your power to pay your bills on time. Being even a few days late with a payment can cause your score to drop. You should set up Autopay to avoid late payments and set up overdraft protection.
• Reduce your amount of debt. Your credit score is affected by the amount of debt that you carry. Reducing or eliminating that debt will raise your credit score accordingly.
• Be leery of excessive credit card use. While a credit card will give you an available credit amount, your credit score can drop as credit card use rises. If you must use your card frequently, make every effort to pay the balance, or a good part of the balance monthly. Avoid high credit utilization with a general rule of less than 30%-50%, and large amounts of new credit when approaching a credit decision point such as applying for a mortgage.
• Be selective about applying for additional credit. Every time you apply for credit, your credit report is accessed, meaning a slight drop in your score. While most of the time this is only a few points, if your score is already low or borderline, a drop of just a couple of points can put you in the “difficult to finance” category. If you can, wait until your score rises before you make any significant purchases or apply for an additional credit card.
• If you’re able to pay off an account in full, don’t make the mistake of closing the account. The act of closing the account will lower your available credit balance, and actually lower your score. Instead, simply maintain the account with a zero balance, using the card sparingly, and always paying the balance in full when it is used.
• Keep in mind that paying off collection accounts will not lower your score. Instead, concentrate on using any extra funds to lower your outstanding debt, and pay your collection accounts when you are able.
• If you don’t have a credit card, it will be worth it to apply for one. Revolving credit and installment loans such as a mortgage or car payment can go a long way towards establishing , or rebuilding credit.
• Be diligent about checking your credit score. While it’s not a good idea to micromanage your score, as it will typically go up and down slightly from week to week, checking it regularly will allow you to monitor your progress and also ensure that there’s no fraudulent actions listed that need to be addressed. You should always scrub your credit report for incorrect information.

According to Fair Isaac and Company (FICO), your credit score is calculated by:

• 35% payment history
• 30% amount owed
• 15% length of history
• 10% new credit
• 10% types of credit used

A score of >= 760 is required to qualify for the lowest mortgage interest rates.

While this takes time, making some small changes can help establish or rebuild your credit score in a shorter time than you may have expected.

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.