Friday, February 18, 2011

How to get a good credit score.

Point One. Oddly enough, to have a good credit score, you have to use credit. If you live a cash only existence, you will not even generate a credit score at all. And without a credit score, you can't get credit. Catch 22 is already taken, this is Catch 44. But this doesn't mean you have to owe anybody. You just have to use credit accounts.

To illustrate, my parents shopped at Leggett for many, many years. They had a Leggett account based on my father's credit. My mother could charge on the account, but it was based on his credit, she didn't work outside the home. When my father passed, the Leggett account was closed by the company. My mother did not have a credit score. She was pissed, and still is.

So you have to have credit accounts with somebody. You can have a Sears card or a JC Penney, but you should also have one of the major credit cards. You wouldn't have to use it much and you could pay it off monthly, just have it and use it responsibly.

Point Two. Don't have too many accounts. This is sort of common sense, but the reason may not be. The more accounts you have, the more inquiries there are into your credit rating. And the more inquiries there are into your credit rating, the lower your score.

Point Three. Pay on time and pay more than the minimum payment. If you want to pay over time, pay at least double the minimum payment and have a plan on how long it will take you to pay the balance off. If the plan is longer than two to three years, you should scale back.

Point Four. Don't use more than 70% of your available credit for each account. This is not really a magic number, but I have heard it quoted as a measure that is used in credit analysis. I have also found others who suggest using even less of your available credit, even down to 10%. The more of your available credit you use, the more irresponsible you appear.

Point Five. Monitor your credit report. There can be bad information in it. You can ask for corrections to be made. You may have to be assertive about it. Know your rights. (The Clash were on this years ago.) If there is negative information in your credit report that is over seven years old, you can have it removed.

If one of your accounts reports a late payment and you can prove it was timely, you can have this corrected. My thinking is that this would be rare, but it is possible.

I have known cases where the same information was duplicated in a credit report. If your mortgage is reported twice, that is a major problem, but it is among the easiest to resolve. Guano happens.

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