While it’d be nice to live a “credit-free existence,” it can be difficult to do so in today’s world. Purchasing a house, a car or securing a loan typically requires some level of credit. The most commonly used credit score is called FICO, where credit scores range from 300 to 850, with the national average being around 723. These scores fluctuate over time, depending on a person’s activities and the transfer of information, so naturally it’s a good idea to get a free credit report each year to ensure your profile is up-to-date. Since the Fair and Accurate Credit Transactions Act of 2003, consumers are entitled to one free credit report a year from Equifax, Experian or TransUnion. However, that report comes with some limitations: You can see what items are on your report, but to see the actual score it will cost you $6-$16.

The most common way people get poor credit scores is to miss a credit payment or to pay late. At the time you may think, “Who cares if it’s just a few days late? They’re still getting their money.” However, once that lateness or missed payment is reported, a credit score can drop as much as 100 - 150 points and will take 24 months to be fully restored. To remedy the situation, be sure you bring all your credit accounts current, paying off late payments and always paying at least the minimum monthly fee, rather than waiting to pay it all at once. For many people, paying automatically through debit or setting a monthly cell phone reminder a week in advance are the best ways to ensure bills get paid on time.

Experts say there are three types of good debt that can actually improve a credit score, if approached wisely. One is a mortgage with a 20% down payment, which typically remains fixed and stable, while showing your ability to manage a big financial commitment. Another is a school loan, which often has guaranteed low rates and no interest payments due until graduation. Putting down 10% or more on a car loan also shows that you are responsible. Remember that a closed credit card account will still show up on your report, so it’s best to keep that account open once it’s paid off. Just make small charges and timely payments on it, such as using it to fill up your car with gas. Soon, your credit report will be seeing an influx of positive reports coming in, which can help counter-balance the negative reports.

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This entry was posted on Sunday, October 5th, 2008 at 10:12 pm and is filed under Financial Services. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.