Boost Your Credit Score

Do you know what your credit score is?

Do you know how your score will affect your next large purchase?

Do credit checks for loans, apartments, and new jobs make you nervous?

Your credit score affects every aspect of your financial life, including qualifying for loans and mortgages, how much interest you pay, and even how much your insurance premiums are, so it's important to monitor your credit score closely.

Improving your credit score is not hard; it just takes time and a little knowledge.

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I recently discovered a website called CreditKarma.com, where you can request your credit score (the actual 3-digit FICO score) for free.

I was concerned that there might be strings attached, so I had to check it out for myself.

The registration process was very quick and easy, and the application to retrieve your credit score was much easier than the process to request your credit report from one of the three reporting agencies.

Credit Karma does not provide a copy of your credit report. They provide your 3-digit FICO credit score only.

Immediately below your score are credit offers from partners of Credit Karma that are based on your credit score. These offers are how Credit Karma pays the bills, so they are necessary and may even be beneficial if you are looking to establish credit or make a purchase soon.

So, while you still need to check your actual credit report at least once a year (to check for fraud and/or errors), if you are just wanting to check up on your credit score, I recommend CreditKarma.com.

There are five key elements that comprise your FICO score: payment history, outstanding debts, credit history age, inquiries, and account types. Each of these items is given a different weight in the algorithm that determines your FICO score. Payment history is 35% of the score, outstanding debt is 30%, credit history age is 15%, and both inquiries and account types are 10% of your total FICO score.

Now you know what components are included in your credit score. What does each of these include? More importantly, what's considered good and what's bad for each component?

Payment History
Your payment history includes the details of how you've been paying your bills. That is, if you've been paying them at all. Each of your credit accounts reports your payments as on time or late. Late payments are reported as being 30-, 60-, 90-, and 120-days late. After six months of non-payment, many creditors charge-off your account, deeming it as an uncollectible account. The more recent the late payments are, the worse the effect it is on your credit score. Timely monthly payments boost your score in this area.

Outstanding Debts
This portion of your FICO score takes into account the total amount you owe on all your credit accounts. This includes credit cards, student loans, auto loans, mortgages, lines of credit, etc. Not only does the FICO score consider the total amount you owe, it also considers the total credit you have available. This ratio is known as your credit utilization. The higher your credit utilization - meaning the closer your balances are to the limit - the lower your credit score. You should keep credit account balances at or below 30% of the limit.

Credit History Age
The length of time that you have had credit is a determining factor of your FICO score. A longer credit history is better than a shorter one. This is because there is more data to create a pattern of good or bad payments.

Inquiries
Each time a business uses your FICO score to make a credit-based decision about you, an inquiry is made to a credit bureau. This inquiry then appears on your credit report. Multiple inquiries within a relatively short period of time have a negative effect on your FICO score, especially if these are credit card inquiries. Few to no inquiries is better. The good news is that only inquiries from the past two years are factored into your FICO score.

Account Types
When you have several different types of credit accounts - loans and revolving credit - it is better than having a single type of credit account.

Now that the holidays are over, it's a good idea to check your credit report. Unfortunately, the holidays are a peak time for credit card fraud and identity theft, and checking your credit report is sometimes the only way to catch fraud.

You can check your credit for free at www.annualcreditreport.com. This report does not include your credit score but it can be purchased for $12.

There are three credit reporting agencies, and each of them is required to give you one free report per year. Which means you can actually get 3 free credit reports each year, by requesting 1 report from each reporting agency. I suggest that you stagger these requests out over several months, rather than requesting from all 3 reporting agencies at once.

For articles and tips on how to improve your credit score, you might want to visit www.myfico.com. You can also purchase your 3-in-1 credit report and score at that site.

One way to cut the sting of the post-holiday credit card bills is to set a new agenda when it comes to credit. So consider the following ideas when setting your credit resolutions for 2009:

Set dates for getting your credit reports: Each year, you should check each of your credit reports from annualcreditreport.com directly. You should spread out your requests, making requests quarterly so you can catch errors that might come up at different parts of the year and spot identity theft.

Get your credit score once a year: A credit score is a three-digit number that reflects the credit history detailed by a person's credit report. Go to www.myfico.com to retrieve your credit score once a year from one or all of the three credit bureaus.

Lock up cards; don't cancel them: Do whatever it takes to limit the use of credit cards in your life, but don't cancel credit card accounts once they're paid off. Why? Because your credit score relies on the number of credit lines you have open and in good standing and the length of time they're open. Lenders want to see a long record of credit management, and longtime accounts that you haven't touched in years may actually help your score because it shows you have some restraint. Remember to use them once a year and pay the full amount off immediately, to keep credit cards active.

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I've gotten several emails lately from people who need to build credit, either because they are young and don't have any credit history, or they have had a bankruptcy or bad credit in the past.

One of the best ways to build or rebuild your credit is with secured credit cards.

What is a secured credit card?

A secured credit card is where you give a bank a security deposit - $500 for example - and receive a credit card with a $500 limit on it. You use the secured credit card the same way you would any other credit card and make regular monthly payments to pay off any money that you spend using the card.

The credit card is secured against the money you have in the bank so there is no risk for the lender. They simply keep the security deposit if you default on the credit card. Most banks will even give you interest on the deposit you made to secure the credit card.

How this helps to build credit:

This is a great way for people with bad credit or with no credit to build up their good credit. First, there is no risk to the bank because you are giving them a security deposit, therefore they are willing to extend credit to you and approve your credit card.

Second, if you make regular and consistent payments on the card then you build a positive credit history on you credit report. Making regular and consistent payments is one of the top criteria looked at when determining your credit score, so this strategy will go a long way towards building your credit.

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What happens to your credit score when you get married?
When you get married, you and your spouse will have some big financial decisions to make together, such as buying a car, buying a house, etc.

It's not unusual for spouses to have completely different credit scores when they get married. So, how does one spouse's poor score affect the other spouse's good credit score?

One common misconception is that married couples have a joint credit score. This is not correct. Each of you will have an individual credit score. The lower credit score will not affect the higher score, unless you apply for joint credit.

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You've heard how important it is to have a credit score, but what is a good credit score exactly? In the FICO scoring system, scores can range from 300 to 850.

A score above 700 is considered good, a score above 750 is considered great, and anything over 800 is considered excellent.

The national average is approximately 680, so that means the average person has a less than good credit score. That's scary!

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The largest component of your credit score is your payment history.

Your payment history consists of:

* Whether you pay your bills on time or not
* How many times you've paid late
* How many times you've missed a payment
* How long an account was delinquent
* The number of late payments and/or delinquent accounts
* How long ago your late payment was
* Whether you've ever been turned over to a collection agency
* Whether you've ever filed for bankruptcy

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There is only one legitimate website to get your free annual credit report and it is www.annualcreditreport.com. Beware of ads or other websites that offer a free annual credit report. Many of these are scams or they are trying to sell you something.

At www.annualcreditreport.com, you can request a free credit report once every 12 months. This credit report does not include your credit score, but you can purchase your credit score by contacting one of the three credit reporting agencies (Equifax, Experian or TransUnion).

Another great resource for credit reports is www.myfico.com, where you can purchase your credit report from all three agencies, including your credit score. myFICO also has an education section where you can learn more about your credit reports and score.

You should check your credit report annually for errors and/or fraud.

Did you find this article helpful? If so, please check out our free 'Boost Your Credit Score in Five Easy Steps' ecourse!