Credit Tips for the Holidays and Beyond

November 18, 2016 · by pcriadmin · Featured, PCRI

Spending and credit habits can be easily tested during the holiday season: from temptation to overspend on those perfect gifts to discounts offered to open a store credit card. So it seemed to be a good time to revisit some tips shared at PCRI’s October financial education seminar.

how-credit-cards-workMyth: To get a high score, run up high balances on your credit cards.

Reality: Using  lot of credit is usually NOT good for your credit risk score. Roughly 30% of a FICO score is determined by a person’s reported debt, with particular emphasis on utilization of revolving credit such as credit cards (utilization = balance divided by credit limit). A rule of thumb is that people with high credit stores typically keep their utilization under 25% on credit cards.

Myth: Paying your credit card bill down to zero every month will boost your score.

Reality: Paying off your credit card is a great habit! You’ll avoid spending money on interest and likely keep your credit usage in the “good” zone. But … this great habit doesn’t necessarily translate into a higher credit score because scoring agencies generally see the balance as of a particular date, not how much is paid each month.

Myth: To raise your score quickly, open a new credit card or take out a loan.

Reality: The FICO score considers a wide variety of information about each reported account. A propensity to open new accounts and a short history on new accounts will likely hurt one’s credit more than help it. But if you take on new credit only as needed and use it responsibly, negative impacts of the new account will generally be offset within a few months.

lead_960Myth: To raise your score quickly, close any unused credit cards.

Reality: While it might seem like closing a credit card would help one’s credit score, that’s rarely the case. Having unused or available credit is more often viewed as a sign of lower risk for creditors. And although closing a credit card might be a worthwhile tactic so you don’t have the temptation to spend money you don’t yet have, it likely won’t boost your score (and might actually hurt it).

But you want to improve your credit score. What do you do? Here are the top suggestions from American Reporting Company:

  • Bring active past-due accounts current—and keep them current
  • Keep credit balances as low as possible, especially on credit cards
  • Request correction letters for any reporting errors
  • Limit new applications for credit cards or store accounts, but leave existing accounts open

So what are the factors that determine a FICO credit score?

  • 35% is based on your payment history for all accounts
  • 30% is based on the amount you owe on accounts
  • 15% is based on how long you have been using credit
  • 10% is based on your applications for new credit
  • 10% is based on types of credit used

Of course, these are just tips and recommendations. Your credit score considers deeper and more complex factors that just these few bullet points. Luckily, we can help. Join one of our upcoming financial education seminars or call us at (503) 288-2923 to make an appointment to meet with us one-on-one.

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