November 24,2008
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Boost Your Credit Rating(201), Pt.3 –
– Two down and one to go (when things go wrong).3) Number and type of open accounts: This can get a little confusing. Some credit card issuing banks just like to rack up accounts in their own portfolios for their own purposes. If they know you and trust you, they'll encourage you to just keep opening more accounts with them and not close your old ones. While it may be comforting to have more choices and fall-back accounts, this can actually hurt you in the broader perspective. The credit card rating bureaus have a different take on this, since they don't benefit from all those open accounts. Holding three ‘good-standing' accounts open can be a good thing in terms of credit depth (especially if the accounts have low charging limits). But having 15 open accounts (easy to do) can bring your credit rating down 150 FICO points in just four months time, even if all accounts have excellent ratings in all other categories. Conversely, pulling out those old stale credit cards from yore and using them for minimal purchases every quarter can turn a liability into an asset. Instead of your rating goin down, it will probably go up. Remember, though, try to limit open accounts to about five.
4) Outstanding debt: This one should be obvious. Of course ‘how much is too much?' is relative to other factors, like household income. Whatever you do, don't max out a credit card.
5) Number and frequency of late payments: This is one of the more serious infractions. Not so obvious here is the surprising frequency, even to the consumer when something goes wrong. It's too easy to wait a few days to pay on a monthly credit card statement and become distracted at the last minute. Also, innocent real-life experiences happen, like when trying to pay online (usually very easy and convenient). Bank of America's website is very confusing when it comes to adding a new account in their payment screen. Traveling to a local bank for help, a teller assists the person in making a payment on an in-house terminal, but confirmations are not given from these local machines. The blowup occurs on the following statement when the person gets slammed for missing that payment. Penalties are severe and credit ratings drop. A desperate phone call may be successful in undoing all the damage but, only through persistence. Most lenders have an unspoken policy of reversing damage for a first-time offence. But these are only found out through persistence. Due to the severity of the damage, though, the trouble is well worth it.