5 Tips to Financial Fitness

- Whether you are buying a house or a car, shopping for an insurance policy, or even looking for a job, you are affected by your credit score. More so than ever before, your credit score influences a lot more than just your loan rate.

Here to help us make sense of credit scores is John Adams.

WHAT IS A CREDIT SCORE? It’s a mathematical prediction of how likely you are to pay your financial obligations ON TIME, based on a number of factors contained in your credit report.

There are many variations of credit scores, but the most widely used one is called your FICO score, and it’s used by everyone from employers to landlords to mortgage lenders to decide if they want to do business with YOU.

So how do we know if our credit score is good or bad? Your credit score is a three digit number between 550 and 850. The higher your score the better. Your score is based entirely on information contained in  your personal credit report. You can get that for free from AnnualCreditReport.com.

Let's say I’m wanting to get a loan to buy a house. What difference does my credit score make? In Atlanta, lenders say most borrowers seeking thirty year financing will pay one-eighth percent less on their interest rate if their credit score tops 720.

While that seems a small difference, it adds up to more than four thousand dollars over the life of the loan. In addition, if your score is below 620, it may be difficult to obtain home financing at any rate.

"I’m convinced - I want a GREAT credit score." How can I do just that? To help boost your credit score, follow these five tips:

1.  Pay your monthly bills on a timely basis.

This sounds very basic, but paying "on time" is vitally important to credit grantors. They believe how you have paid in the past is a strong indicator of how you will pay in the future.

Your payment history makes up about 35 percent of your credit score, and it comes directly from information on your credit report, so pay your bills early and check to make sure none are late - ever.

2.  Don't overuse your revolving credit.

In fact, it's best to keep your credit card balances below 25 percent of your limit at all times, even if you pay it off in full every month.

Carrying a balance above 50 percent of your limit indicates to creditors that you may be living off your credit card during a difficult financial time. Keep your utilization percentage low and ask for increased limits if you need to. This factor makes up 30 percent of your credit score.

3.  Keep accounts open to build longevity.

Closing one account and opening another looks to creditors like you are churning your credit, and that scares them. Instead, keep unused accounts open by using them at least occasionally. The length of your credit history accounts for about 15 percent of your score, so strive for long-term relationships with quality merchants and institutions.

4.  Take it easy on new credit requests.

Each application you make generates a credit inquiry, and too many inquiries signals the bureau that your circumstances may have taken a turn for the worse. This factor makes up about 10 percent of your score.

5.  Try to keep a healthy mix of credit types.

A mix of active credit cards, retail accounts, installment loans, and mortgages would indicate a prudent use of credit in your financial life.  Overuse in any one area could indicate a credit dependence. This area accounts for the final 10 percent of your score.

What’s the most important thing to remember? Remember that your credit score only looks at information contained in your credit report. That's why it is so important to make sure your information is accurate. 

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