December 27,2008
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Everything You Wanted to Know About FICO Scores*, Pt.2 –
– Gonna find out who's naughty and nice.2) (30%) Debt ratio: It used to be that owing 50% if one's credit card limit was okay but, today the standard is being lowered toward 33%. So the best place to be is owing 1/3rd of the total you're allowed to owe. Even if you pay the credit card off every month, it can still hurt your score. The reason is that the bureaus only take a snapshot once a month and if your debt happens to be high at that moment well, there ya go. This emphasis is fairly new as credit card lenders are forced to charge-off more and more good intentions. The mood today is all about reducing risk. It's not a good time now to be hanging out there.
3) (15%) Credit history length: This has long been a trusted guideline. Responsibility is one of the strongest indicators and that is best proven over time. Keeping a credit card account for years is a good thing, even if you hardly ever use it. Be careful, however to not allow it to become dormant. Large players like Capital One, Discover and Bank of America have taken to closing millions of these for not being used in over two years. Try to remember to use the credit card every quarter or so. Try not to allow six months go by without making a single purchase. Keep your oldest accounts open as long as possible.
4) (10%) New accounts: Opening a new credit card account once a year is okay. After settling in a little while, the account develops maturity and this is good. But opening too many too soon sends out warning flags of instability or, even worse, financial straights. It's not the message you want to send to the credit score bureaus. They're skittish enough as it is. You want to appear to be stable and responsible. This tendency stands out and is caught immediately. Not the kind of attention you want to attract.