August 27, 2010
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FICO Score; What's It All About?, Pt.1
Keep it low to bring it high.Are you wondering what a FICO score is? Have you taken the time and expense to order your FICO score? To most credit cardholder, the FICO score is a mystery. You read and hear different things and wonder what's true and what isn't. If you plan to apply for an auto or mortgage loan in the near future, you will want to have a good understanding of how your credit card accounts affect your FICO score. Although the FICO score has been around since the late 80's, it really hasn't been until the last few years that consumers have taken note and become more interested in learning how to raise their score. The recent recession and credit card crisis has brought an even greater awareness to its mystery. To help you obtain a better understanding of the FICO, we have outlined a few of the more common talked about ideas.
If you have been told that you can raise your FICO score if you close our credit card accounts, don't believe it! Closing a credit account will hurt your credit score. Why? Because FICO uses your current card balance and your available credit to factor what is called your utilization score. Some might refer to it as a credit card debt ratio. FICO factors in your utilization score to calculate your final FICO score. The less available credit you have, the lower your utilization and the lower your FICO score. If you close a card account, you are in fact lowering your available credit. Rather than close an account, take the card and put it in a safe place where it would be available for emergencies only. You'll reduce the temptation to spend and maintain a higher FICO score.
Another thing to keep in mind as far as credit card balances go, keeping your balance low will also help to increase your FICO score for the same reasons stated above in regard to your credit utilization. A good rule of thumb is to keep your card balances to 30 percent or lower of the available credit. Read part two to learn how your income might affect your credit score.