January 28,2009
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Understand What Affects Credit Scores, Pt.2
– Find your FICO strengths and weaknesses.Credit Counseling: For those who go back a few years, you may remember the days when seeking credit card debt counseling (or any other kind of counseling, for that matter) meant there was basically wrong with you and people should distance themselves. A little of that Victorian-Age thinking is still around but, not in the credit card industry. Over time, when results were actually measured, it was found that this myth should be laid to rest along with the ‘earth-centric universe'. Especially in these times, prudent credit card debtors are wise to seek counseling because the ‘new order' right now is chaos. So, don't worry about cutting your finger as you jump off the building ‘cause the fall is gonna get you anyway. Get that counseling before jumping off.
My FICO Score means everything: True, it means a lot but, not everything. Credit card lenders have become savvy enough to look beneath the surface a little. You can have a great credit score but, be in debt up to your ears and be turned down. On the other hand, you can have a checkered credit score but have a good stable paycheck and low debt and be accepted. Credit card lenders will also want to know about your income-earning capabilities and how responsible you are in other financial dealings like your bank account, debt management and your stability in dealing with life's problems.
Closing all my unneeded credit card accounts is good: Not enough data. Keeping your oldest credit card account active is a good thing. Remember, 15% of your FICO Score is taken from your credit history. A longstanding record of credit responsibility tells a lender much about you. Even if the interest rate is high, you should use your oldest credit card at lease once every six months, just to keep it active. It will remain in your credit report in good standing as long as you do that. As far as the high finance charges on the card, make sure to pay the charges in full with your next statement to avoid all finance charges.
Also, consider that, ‘debt ratio' is also a big factor in determining your FICO Score. Credit card lenders prefer to find you owing about 30% of the credit available to you. So, if you owe $6,000 on a $10,000 account and owe nothing on your only other account, also having a limit of $10,000, you're probably OK. (your ‘debt-ratio' is the preferred 30%). But, if you close the unused account, now your ‘debt-ratio' has jumped up to 60%. That's bad. On the other hand if you have 34 credit card accounts open and all in ‘good standing' (as I do), feel free to close a bunch. Just be sure there is no balance showing on them and space the closings out by, at least, a month – preferably two.