What’s Your FICO?

Staying Financially Fit with Deborah Owens

If you thought the only reason you need to have a good credit score is to qualify for a mortgage then think again. Many institutions are increasingly using credit scores to determine whether you would make a good employee or a safe driver. Financial institutions, insurance companies, and employers all use credit scores as a method to determine your risk profile. Companies believe that how you behave with your money is a good indicator of how you will handle their resources and responsibilities within an organization. In light of the recent financial distress that many people are experiencing, it’s important to understand the effect a negative rating can have on your ability to obtain financing and future employment.

First, you need to understand how the credit scoring process works. Anyone with a credit history has three credit scores calculated independently by each major credit reporting agency — Experian, Equifax, and Transunion. Each company varies in comparison according to the data used by the credit reporting agency. If you are going to apply for a loan, it makes sense to check with the financial institution to determine which agency’s information they will use. This will allow you to determine in advance where you can qualify for the best terms.

Begin by checking your credit report from each of the agencies annually and obtain them for free at www.annualcreditreport.com. You can take this process to the next level using a tactic of ordering from a different agency every four months. Many financial institutions offer identity theft monitoring for a fee whereas using this method can accomplish the same result without it costing you a dime.

Next, make sure you request your credit score, which is a three-digit number, at least annually from all three credit bureaus that were previously mentioned. Visit www.myfico. com to retrieve your score and to arm yourself with the knowledge you need to manage Sta ying Financialy Fit with deborah owens your financial reputation effectively. FICO scores range between 300 and 850. Ratings are as follows:

• Excellent: Over 750
• Very Good: 720 or more
• Acceptable: 660 to 720
• Uncertain: 620 to 660
• Risky: less than 620

You may think it makes sense to close your accounts and cancel your cards — don’t. Yes, you want to limit your use of credit cards but don’t cancel them once they are paid off. Why? Because your credit score relies on the number of credit lines in good standing and the length of time they’re open. Another factor is the percentage of the credit line used which means it’s not smart to use your maximum limit on any card.

Being fashionably late can be deadly when it comes to your credit. Late payments on large loans like your mortgage or car note can cause the most damage. It’s extremely important to pay your bills on or in advance of the due date. Many financial institutions will send e-mails prompting you of a pending payment.

The truth is that if you purchase something on credit because you are unable to pay cash, you should consider it a “I can’t afford this” red flag. Using credit responsibly and being proactive when it comes to your finances is no longer an option. Higher credit scores can reduce your cost to borrow and be the winning edge you need to secure your next position.

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