Sep 20

I’ve written over the past months about the different factors that make up your credit score, and have referenced the site Credit Karma which provides a free scoring service that will help you monitor and improve your credit score. Today, let’s look at on time payments.

This one is a no-brainer. It’s a highly weighted part of your score but it’s also the one that you should never fail to keep at 100%. Even letting one account go past 30 days will have a detrimental impact to your score. It’s very simple. Pay the bill when it’s due. Never let your minimum payments become so large that you risk not being able to pay that bill. For the three cards I regularly use, I have a payment sent automatically each month, enough to cover the minimum so if the bill gets lost or misplaced, my biggest risk is to pay interest, but not to have missed the payment completely. One more article in this series, and then a wrap up and summary. Stay tuned.

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Aug 31

I’ve written a number of articles on credit scoring, and the different components of the score including the Average Age of Your Credit Lines, the Amount of your Credit Utilization, and the Number of Cards you have. Today, let’s take a brief look at the impact of credit inquiries.

(click to enlarge)

Wow, Joe, a “C”? Yup, “C”. This is a snapshot from my credit report card at Credit Karma, and while my overall score is 770 today, it will go a bit higher as we get closer to mid-2013. In mid-2011, I received a solicitation to refinance a rental property I own. The fee was small, and no paperwork was required, but of course, an inquiry to my credit report. In November, 2011, I refinanced my main mortgage, dropping the rate from 5-1/4% to 3-1/2%, and even with some closing costs, the break even was less than 6 months. Shortly after, the same back sent me a credit card offer, zero interest for a year, and a crazy introductory perk I’ll write about next week. Too good to pass up, but it created one more inquiry.

The interesting thing is that scoring is about averages, not motives. When I am a serial refinancer, lowering my rate every two or three years, I may be saving a lot of money, but this aspect of the score is impacted. We bought our house in 1996 and the rate was 7.625%, it’s now less than half that, and our balance is half of we started at. Note, a normal amortization has a balance of 75% the starting value when halfway through a 30 year mortgage. The current mortgage isn’t 30 years, it’s 15.

Same with those who move from card to card. By cancelling old cards and applying for new ones, you impact both the average age of you credit, and produce more hard inquiries on your report. I’m not obsessed with the score, just intrigued at its calculation. I’m at the point in my life where I doubt I’ll ever have another mortgage, when we sell the house we’re in, we’ll buy the final house with cash. I’m still a sucker for cards with crazy offers such as zero percent or high cash back, but that story is for next week.

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Sep 14

Last year, I published a brief article Your Credit Score, in which I described the different components that make up your Fico Score.  Since then, we’ve reviewed Age of Open Credit Lines, Number of Open Accounts, and Credit Utilization.

Today, let’s talk for a moment about on-time payments. This one should be obvious to you. Pay your bills on time. No matter what. When I was young and stupid, I probably had too many cards, chasing one deal or the next, and my utilization may have been pretty high for a time, but the one thing that remained sacred was the on time payment. The snapshot above from my Credit Karma report card shows how even if 1% of your payment history is late, you take quite a hit to your score which can really cost you in the long term.

Disclaimer – I receive no compensation for any reference to Credit Karma, if they ever decide to send me a t-shirt, I’ll disclose it to keep the FCC happy.

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Jun 27

I thought it a good idea to continue the series on your credit score, started with Too Little Debt, and then How Old is Your Credit Card? Today, let’s look at my score (provided by Credit Karma) for total number of accounts.

Well, I got an A, which is cool, even though I’ve canceled a number of accounts and moved on. The 9 sounds about right, a mortgage, home equity line, and 7 different credit cards.  More than anything, I find it interesting and curious that the score basically says “more is better.” Just getting the couple credits cards and one mortgage would keep you at the bottom of this scoring criteria. Hey, don’t shoot me, I’m just the messenger.

How many account do do have? How many are still open?

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Jun 02

Last month I posted Too Little Debt, in which I discussed how a zero balance credit card bill is actually a negative to your credit score.

Today, I’d like to offer another aspect of your credit score – the Average Age of Open Credit Lines. Here, longer is better. This is one criteria that I really object to. Think about it, a card issuer decides to raise their rate or annual fee and you decide to get a new card from a different bank. If you had only that one card, you may be dropping your average time from many years right down to zero.

You can see from this chart, a snapshot from Credit Karma, that offers a view of the image of account age on your credit score. So, find a credit card or two with no fee and stick with it. Keep in mind, it’s simple math, if you have a few credit lines, adding a new one will have less impact on average time than if you only had one. You are also far better off canceling a more recent line than one that’s older than your personal average.  How old is your oldest card?

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