Credit Tips

A credit score is a number that reflects the likelihood of you paying back the debt you owe. A FICO (Fair Isaac Corporation) score is the best known score, and many consider it to be the most accurate. However, there are also three major credit bureaus including Equifax, TransUnion, and Experian that calculate and report credit scores. Though each company calculates the scores a little differently, on average the range of scores is as follows:

Excellent | 720 – 900 (900 is the highest score on average)

Good | 660 – 719

Fair | 620 – 659

Poor/Bad | Under 619 (300 is the lowest score on average)

If you find yourself toward the lower portion of the credit score range, remember there is always hope and room for improvement!


10 Tips to Help Improve your Credit

  1. Make all monthly payments. Missed payments have the most significant impact on your credit score and should be avoided. Typically, payment history makes up for nearly 35% of your credit score. Many people understand that making payments on time should be a top priority, but they find themselves over extended and unable to make their monthly payments.

    Ways to Get on the Path of Not Missing Payments:

    • Create a monthly budget.
    • Avoid making unnecessary purchases.
    • Contact your credit card company and inquire about decreasing your monthly payment.
    • Make the minimum payment. (This is better than missing the payment entirely!)
  2. Make all payments on time. Late payments have the ability to lower your credit score. Many individuals are able to make the payment but forget to make the payment before the due date.

    To Avoid Making Late Payments:

    • Set a monthly reminder.
    • Inquired from credit card companies and/or banks to see if they have a monthly reminder email service.
    • Streamline all your monthly bills in order to make it easy to remember.
  3. Keep a close eye on your credit report. Keep a close eye on your credit report, making sure there are no errors on your report. Errors have the ability to lower your credit score. If you uncover an error, a dispute should be filed with the credit bureau in order to fix the problem. The dispute should be a written report that includes detailed information and supportive material outlining why there is an error. The credit bureau has 30 days to investigate and correct the problem if they agree it is an inaccuracy.
  4. Avoid closing old lines of credit. Many people believe that in order to improve their credit they should close old or unused lines of credit. In actuality, old lines of credit have the potential to improve your credit score. When lenders view a credit report, they observe the amount of credit the borrower has available and the amount of credit used. This is called the debt-to-available credit ratio. Ultimately, lenders want to see that you have a high amount of credit available but only use a small portion of it.
    For example, a borrower might have a line of credit worth $25,000 but only uses $5,000. This would be a debt-to-credit ratio of 20%. Closing an old line of credit decreases the amount of credit available and erases potential good history from the credit report. It is important to know that you should use old lines of credit occasionally and pay it off fully. This helps eliminate the risk that a card issuer will close the account or decrease the line of credit if not used.

    Debt-to-Available Credit Ratio in Action

    Debt / Available Credit = Debt-to-Available Credit Ratio
    Debt= $5000, Available Credit= $25,000
    $5,000/$25,000=.20 x 100 = 20%
    (Multiply by 100 to get the ratio in percentage form)

  5. Increase your line of credit cautiously. The lower the debt-to-available credit ratio, the more of a positive impact on your credit score. For example, a borrower might have a line of credit worth $25,000 but only uses $5,000. This would be a debt-to-credit ratio of 20%. You should strive to keep this ratio near 50% but having it lower than 35% is even better.
    One way to improve this ratio is by contacting your credit line issuers and inquiring about increasing your line of credit. But Beware!  Do not do this if this increase in available credit will tempt you to spend more. Also, ask if the request will require them to pull your credit report. If it does, you may want to decline the request because having several creditor inquiries on your credit report can have a negative impact on your score.
  6. Open new credit lines wisely. A Credit Line is a new credit card, loan, or any other type of borrowing. New credit lines account for about 10% of how your credit score is calculated and are highly monitored by credit issuers and lenders. Opening many accounts in a small time frame has the potential to lower your score. New lines of credit should be opened wisely – think through the decision and the alternatives first.
  7. Savings equals security. Missing your monthly credit card payment has a significant impact on your credit score. One way to insure that you always have the funds to make your monthly payment is to save. Setting aside money every month allows you to create an emergency fund, in case any unexpected event occurs.
  8. Low balances are important. A credit card balance is the amount of money that is owed to the credit card company. Lenders want to see a low credit card balance after each monthly payment. It is best to fully pay off your credit card balance each month. But if this is not possible, pay as much as you can afford to lower the monthly balance. Try to at least pay more than the minimum payment. For example:Ben receives his monthly credit card payment. He notices that he has a $1,000 balance on his card, meaning he owes the credit company $1,000. Ben cannot afford to pay the full $1,000, but he knows he can afford to pay more than just the $50 minimum payment. Ben decides to pay $100, which lowers his credit card balance to $900.In the example, the lender finds Ben’s decision to pay $100 versus just the $50 minimum payment favorable because his decision resulted in a lower ending balance for that month. Obtaining a low monthly credit card balance is especially important when applying for a mortgage loan. Here are some ways to help you keep a low monthly credit card balance.

    Make it a Priority to Pay Down Debt:

    • Avoid making unnecessary large purchases.
    • Keep card usage low.
    • Make a budget and stick to it.
  9. Beware of credit-repair scams. Look out for advertisements or catchy words that grab your attention and give you the hope of being able to quickly improve your credit. The Red Flags of a Credit-Report Scam: The company makes you pay for the credit service before the service has been performed. Under the Credit Repair Organization Act, a company cannot legally require you to pay until the service is completed.
    • The company does not communicate the steps you can personally take to improve your credit.
    • The company suggests that you do not contact the three major credit bureaus.
    • The company recommends that you create a new credit identity. Creating a new credit identity is illegal and may have severe legal consequences.
    • The company suggests that you dispute all credit report information, not taking into account the accuracy or timeliness of the entries.
  10. Take advantage of other resources. Consider visiting the three major credit bureaus’ websites (EquifaxTransUnion, and Experian) and visiting www.myFICO.com. In addition, many financial resources such as blogs and articles are available online. Please take caution when reading to make sure the information presented is from a reliable and accurate source.