Fico Score:
Your Adult Report Card

A couple of weeks ago, we heard a radio show host refer to your fico score as your "Adult Report Card". It's true. It's a trust meter on how well you handle borrowed money.

The fico score has been depicted as some sort of enigma. We know it's a number that determines your interest rates but I think that's as far as some people take it.

The credit bureaus do not even detail how to get a good credit score.

What you should realize is that your credit score can dramatically affect your wealth. It factors your interest rate, rate of return, and financing options. So, it is very important to know that you can get your free credit score check online.

So let's explore:

Why is it important?
What are some misconceptions?
What can lower it?
And most of all, how can you raise it and maintain it?

Why is it important?

Your fico (Fair Isaac Company) score is a ranking on your ability to pay back borrowed money. The higher the number, the better. Since this number determines your interest rates, it is important because a lower score can erode a lot of your wealth.

Some think that having no credit at all is better. It isn't.

No credit is almost as bad as bad credit.

If you think about it, who would you trust more with your new car? Would you rather have someone with a bad driving record or someone that has never driven at all? They're almost equally as bad.

What are some misconceptions?

  • You can raise your score by lowering your credit availability.

    Lowering your credit availability can have the opposite affect of what this strategy intends.

    When your credit report is pulled, it is a snapshot of a point in time. What we have have learned is that you do not want your balance on a credit line to exceed 30% of its availability.

    For example, if your credit availability is $10,000, try to keep your balance below $3,000.

    -What if I pay my bills on time?-
    It doesn't matter since this report is a snapshot in time. Your report does not say you pay your bills on time. It will say you are a high risk if your balance happens to be close to your credit availability.

    Also, having high available credit will not lower your grade. As you can see, it could actually help your score.

  • Having a balance on your card improves your credit.

    I initially heard this from a friend when I was in college. But this advice holds no merit. My wife and I pay off our balances every month and we both have good credit scores.

    This should be good news! Not carrying a balance means that you don't have to pay interest when you don't want to. Who do you think started this rumor that carrying a balance is good? We have some guesses.

  • Requesting a credit report will hurt your score.

    This depends. When you make a hard inquiry, your score can be affected, but only by a few points. A hard inquiry is made when you are actively seeking credit (i.e. a new credit card).

    But, if you make multiple hard inquiries for a car loan within 45 days, those will only count as one inquiry.

    A soft inquiry can be made to get an approximate figure of what your score is. Our Prepaid Legal Membership performs soft inquiries every month to investigate any unusual occurrences on our credit report. These don't hurt your score because you aren't applying for credit.

What can lower it?

  • Not paying your bills on time.

    Some of you may be thinking...duh. But, you'd be surprised. If it was so apparent, everyone would have great credit right? We know that's not the case today.

    So here's a habit you can work on: Pay your bills on time! If you can't pay a bill on time, then maybe it shouldn't be a bill.

  • Closing credit card accounts.

    One of the benefits of credit cards in your wallet is that they have history. We've heard it referred to as roots. So, the longer you have a credit card, the deeper the roots. If you close a credit card account that you don't use, you uproot that history.

    If you have good credit history with a particular card, then you'd really want to keep it. Also, closing a credit card decreases your credit availability that it carried.

  • Transferring balances.

    We were taught that transferring balances between cards has an adverse affect on your fico score. To the credit card companies, it just looks like you're moving these balances.

    They're probably right.

Now the question is:

How can you raise it and maintain it?

There are some strategies that people can take to fix credit scores. We recommend understanding it, then improving it and maintaining it.

Pretty soon, your increased knowledge of your fico score will save you, and/or make you, money.

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