In my perfect world, there is no credit score. And I don’t believe credit is necessarily evil, but in my perfect world, it’s ok … perfect, so it doesn’t have to be!
Return to reality. There are countless reasons why you need a good credit history and a good credit score.
Whether you like it or not, much is now based on your credit score. For example, consider the premium for car insurance. Want the best price? You need a good credit score.
Want to get a really great apartment out of all the applicants? You must assume that your potential landlord is trying to look up your credit history to determine if you want to create a tenant that you can trust and pay on time.
Are you competing for a job with a great employer? In most states, employers are allowed to see how you handle your finances, so hope your credit file is clean and well represented.
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We live in a world where, in certain circumstances, our credit report is considered a reference to the character. Take a look at my credit file, and you will get a good idea of how I manage my life. You will see a little evidence of my personal integrity, how seriously I take my commitment.
The FICO score is the most highly valued and used by most lenders and others who see their credit score. Each major credit bureau has a branded version of FICO. How these scores are determined based on the information collected in the credit file is the property of FairIsaac Corporation, the creator of the FICO score.
However, I know that FICO is considering what it calls “utilization.”
Utilization is a credit limit compared to the amount of credit available at a given time, expressed as a percentage.
So if you have a credit card with a $ 1,000 credit limit and a $ 100 balance, that card will be “used” by 10%. Divide your account’s outstanding balance by your card limit and multiply that number by 100 to calculate your usage. ($ 100 / $ 1,000 .01 x 100 10)
You can calculate the “total usage” by summing the balances of all your credit cards, dividing by the sum of the credit limits for all those accounts, and multiplying by 100. Credit scoring looks at the utilization of both.
The optimal usage rate is 0% because there is no credit card debt and no interest is paid. But that’s not practical for everyone, so the highest percentage is the lowest percentage that can be achieved. In fact, according to FICO, the average usage rate for consumers with exceptional credit scores above 800 is 4%.
There are reports across the internet claiming that 30% or 50% is the “goal” percentage to achieve a great score. They are false reports. In fact, nothing great happens at 30% or 50%. Sure, 30% is better than 50%, but not as good as 20%.
Think of usage as you would golf. The lower the score, the better. In general, you should use less than 30% to achieve the highest credit score. This is intended to be as low as possible.
Pay your credit card as much as you can. It’s not good to have a lot of credit card debt. It’s a high debt and can cause havoc on your FICO score. Thank you for your score if your utilization drops below 10%!
Question: On a scale of 1 to 10, 1 is “don’t care” and 10 is “fully obsessed and checked regularly”. What is the relationship with your FICO score?
Founder of Mary Hunt, www.EverydayCheapskate.com, I’m writing this column for Creators Syndicate. Send comments, tips and questions on her website. She answers topics of general interest throughout this column, but cannot answer her letters individually.
Daily Cheap Skating: Whether you like it or not, you need a good credit score | Advice
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