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Improving Your Credit Score

How low can you go?

Do you know your FICO score?

The three-digit number says a lot about your money management skills and can make or break you when it comes to obtaining a loan to buy a house, car or boat.

Pioneered by the Fair Isaac Corporation, a person’s FICO score falls somewhere between 300 and 850. Numbers above 700 are generally considered good-to-excellent, while scores under 680 are fair and those below 620 are considered poor.

To determine your score, credit bureaus consider:

1. Payment history: This factor accounts for 35 percent of your FICO score and consists of your payment records and any accounts sent to collection agencies or declarations of bankruptcy.

2. Money Owed: Also known as your debt-to-credit ratio. This factor refers to the amount of money you owe to creditors and the amount of available credit you have used. It accounts for 30 percent of your FICO score.

3. Length of Credit History: This is the average time your accounts have been opened, and comprises 15 percent of your score.

4. Types of Credit Used: Looks at where you are borrowing money. It accounts for 10 percent of your FICO score.

5. New Accounts: Takes into consideration the amount of new credit accounts you open. It makes up 10 percent of your score.

If you are looking to improve your credit score, work on paying down your debt. Doing so will have a positive effect on your debt-to-credit ratio. You want to avoid maxing out your credit cards as lenders frown upon individuals using a high percentage of their available credit. In most cases, racking up high credit card balances can indicate poor financial management skills. Experts recommend capping your usage to about 30 percent of your available credit. If you have used more than 30 percent, then pay off the debt as soon as possible to help raise your credit score.

This entry was posted in Credit by Michele Cheplic. Bookmark the permalink.

About Michele Cheplic

Michele Cheplic was born and raised in Hilo, Hawaii, but now lives in Wisconsin. Michele graduated from the University of Wisconsin-Madison with a degree in Journalism. She spent the next ten years as a television anchor and reporter at various stations throughout the country (from the CBS affiliate in Honolulu to the NBC affiliate in Green Bay). She has won numerous honors including an Emmy Award and multiple Edward R. Murrow awards honoring outstanding achievements in broadcast journalism. In addition, she has received awards from the Aircraft Owners and Pilots Association for her reports on air travel and the Wisconsin Education Association Council for her stories on education. Michele has since left television to concentrate on being a mom and freelance writer.