Posted by: Brian Powers | February 6, 2009

Managing Your Credit Score

In today’s world your credit score is critically important to your financial well-being.  It affects everything from the interest rates for your home and automobile loans to your insurance premiums.  With identity theft at an all-time high and continuing to rise, actively managing your credit is vitally important to protect yourself not only from identity theft but from credit reporting errors as well.

You are allowed to pull your credit from the credit reporting bureau’s once per year at no cost to you.  Have you reviewed your credit report yet this year?  Tax time is the perfect time to do this.  Get in the habit of reviewing your credit reports every year at tax time so you don’t forget.

You might also want to consider signing up for a credit monitoring service that automatically monitors your credit and alerts you whenever there is activity on your credit report such as new accounts, past due accounts, etc.  Many of the credit card companies offer these services to their clients, and many banks now do the same.  The credit bureau’s offer credit monitoring as well.  Experian for example offers a service called ‘Triple Advantage’ where they will continuously monitor your credit reports with all 3 major bureau’s and report any suspicious activity. Triple Advantage carries a $14.95/month fee, and also allows you to run a credit report whenever you like and also provides identity theft insurance.  Equifax and Transunion offer similar services.  Research them all to find out which one best suits your needs.

I encourage everyone to actively manage their credit.  Too many consumers are passive when it comes to their credit.  They wait until they need credit to buy a new home or car to run a credit report. And unfortunately for many with credit reporting errors or victims of identity theft, they find out when it’s too late.  Get involved now to protect yourself from poor credit.  In the long run, the costs of inaction are far greater and damaging then the small amount of time and money it takes to actively manage your credit.

Ever wonder what makes up a credit score?  Here are the major contributing factors to determining your credit score:

5 Factors That Decide Your Credit Score

Credit scores range between 200 and 800, with scores above 620 considered desirable for obtaining a mortgage. The following factors affect your score:

1. Your payment history. Did you pay your credit card obligations on time? If they were late, then how late? Bankruptcy filing, liens, and collection activity also impact your history.

2. How much you owe. If youowe a great deal of money on numerous accounts, it can indicate that you are overextended. However, it’s a good thing if you have a good proportion of balances to total credit limits.

3. The length of your credit history. In general, the longer you have had accounts opened, the better. The average consumer’s oldest obligation is 14 years old, indicating that he or she has been managing credit for some time, according to Fair Isaac Corp., and only one in 20 consumers have credit histories shorter than 2 years.

4. How much new credit you have. New credit, either installment payments or new credit cards, are considered more risky, even if you pay them promptly.

5. The types of credit you use. Generally, it’s desirable to have more than one type of credit — installment loans, credit cards, and a mortgage, for example.

For more on evaluating and understanding your credit score, visit www.myfico.com.

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