Are you killing your credit score?

Everywhere you turn these days someone is running your credit to rate you as a customer, and many are now quick to report you as being delinquent or bad debt.

Credit scores are used by a wide variety of companies to rate new customers, determine which customers they want to keep, and target customers they would like to see leave.

Having a strong credit score can help you save money on everything from car insurance to the interest rate you pay on loans. It can also come in handy when you apply for service with a utility or cell phone provider. Check out www.myfico.com to learn more about what goes into determining your FICO score. Learning the things that affect your score is the first step in improving your credit score.

There is a great article on money.com today - "5 Ways to Kill Your Credit Score":
http://money.cnn.com/2006/07/10/pf/credit_killers/index.htm


The article discusses 5 areas that many people ignore or don't realize may impact their credit score. I will admit that I made 3 of these mistakes many years ago, and ironically, I thought I was being smart with my money at the time.

The article warns against, "Too many in-store cards," but one Christmas, several years ago, I decided to take advantage of every in-store offer to save the 10-15% by signing up for a credit card. I only took advantage of the offers where the savings would be $25 or more, and my savings was as high as $75 at one store. Unfortunately, my credit score probably plummeted 100+ points in December of that year, and it probably took close to a year to recover.

My next step was too clean up my credit report. I decided it was probably not wise to have open accounts on my credit bureau report that I was not using. I started contacting creditors and closing accounts. I included accounts I had just opened at Christmas, but I also included accounts that I had used in the past but were not currently in use. This most likely caused my credit score to drop even further, or at least recover more slowly.

As the article mentions, part of your score is based on the time accounts have been open so "closing credit cards" is not necessarily a wise move. By closing the accounts I was stopping the clock from running on the length of time the accounts had been open.

Also, a more important factor that it mentions is "High card balances, low FICO score." Let's say I had $20,000 in available credit when all of the accounts were open, but I only had a balance of $2,000 on all of the accounts combined. That would mean I had 90% "available credit." However, if I close all of the accounts except for the one card that has the $2,000 balance but only has a $4,000 limit, I have essential reduced my "available credit" from 90% to 50% by closing the other accounts.

Having a high credit score can help you save money and gain a higher standing with companies you do business with on a daily basis. Companies want to attract and retain customers with high FICO scores, and they know that you have lots of choices when you shop. Don't be afraid to shop around for the best rates and services. Remember, money saved on expenses can go toward investments, retiring debt, or enjoying life (like vacation!!), and leveraging your FICO score is a great way to do just that.