Understanding how credit scores work, and therefore, having a good score can save you lot of money. In insurance, a good credit score and history can mean paying less for home and auto insurance each year.
This is the 5th post in a 5 part series on your credit scores. Read:
- Part # 1: How Does Your Credit Score Work?
- Part # 2: What Effects Your Credit Score?
- Part # 3: Where Should I Get My Credit Score?
- Part # 4: How To Get My Annual Free Credit Report
What’s the Fastest Way to Raise my Score?
- Delete any errors from your credit report
- Automate your finances to never miss a bill
- Pay down revolving debt. Start with the debt that is closest to its credit limit. (Note: This might not make financial sense because there is no guarantee that the debt that is closest to its limit is the debt with the highest interest rate.)
- Ask a parent or a friend with great credit, to be added as an authorized user
- Ask for an increase in your credit limit
If I Close All My Accounts, Will That Hurt My Credit Score?
Yes. Creditors like to see a history of credit. If you close your accounts, you will have no history.
Why Does my Credit History Affect my Insurance Premiums?
Insurance companies have found that people with low credit scores tend to file more claims.
Do I have More Than 1 Credit Score?
You only have one FICO score. However, there are many other ways companies choose to classify you.
Have you ever heard of your VantageScore? It was once thought, that this was going to replace your FICO score. Most lenders today evaluate your risk potential with a FICO score. So I think it’s important to concentrate on that.
The formulas are not exactly the same but they’re similar.
I was denied a Loan Even Though I Have Perfect Credit, Why?
Ask the person who denied you the loan. By law, they have to provide a response as to why you were denied inside 30 days.
What is Revolving Credit?
Revolving credit is a term used for credit that has no expiration.
Car payment, student loans, or mortgages are not considered revolving because you eventually pay these types of loans off. Loans that are paid off are called installment credit.
A credit card is a revolving because the credit is always available. As long as you pay it off each month, it’s always there.
Your FICO score looks at the amount of revolving credit you have compared to installment credit. The less revolving credit the better, in the eyes of FICO.
Does Applying for a Credit Card Hurt Your Credit Score?
Yes, applying for a credit card is a hard inquiry, which can negatively affect your credit score in the short-term. You can expect your credit score to go down around 5 to 10 points for six months any times a hard pull is done.
Keep this in mind, if you’re applying for a loan in the near future.
That’s it for the series on your credit score. I hope you not only enjoyed reading but learned what to do in the future to optimize your score.
If you have any questions, please write in the comments.
