Knowledge is Power: 5 Steps You Can Take to Raise Your Credit Score

Let's face it - we live and participate in a society which makes judgments about us based on our creditworthiness and by that I'm referring specifically to the FICO score (developed by the Fair Isaac Corporation), the most widely used scoring model which ranks consumers by how likely they are to repay debt. The FICO score (ranging from 300-850) is used to assess risk in numerous capacities, such as when we are looking to borrow money, get insurance, apply for a job, and so on.
Clearly our credit score can have a great impact on our lives (in a financial sense) therefore it is essential that we actively manage it to make sure that it is as high as possible. The good news is that each one of us has the power to positively impact our respective credit score. Once we have a better grasp on the factors which comprise our credit score, we can be better equipped to take the necessary steps to improve it.

• Pay bills on time - The single biggest component of your score (35%) and the most important thing you can do, period. Invest the time to get organized and make sure you know the payment due dates for each of your bills, especially credit cards. Develop a system that works for you and check in with it often so that you're always ahead of the curve when it comes to upcoming payment deadlines.
  
• Control your balances - This is also known as your utilization rate and comprises 30% of your score. The lower your utilization rate, the better off your score will be. The rule of thumb is to try and keep your balances below 25% of your available credit.
  
• Length of credit history - This component makes up roughly 15% of your score. It may seem counter-intuitive to keep open old accounts which are still open yet idle but they can actually help your score. The older accounts show that you're a stable and seasoned consumer who knows how to manage debt and keep it for the long-term.
  
• Keep new credit requests to a minimum - This component accounts for 10% of your score. Each time you apply for new credit (insurance, loan, credit card, etc.), a copy of your credit score is requested or "pulled" from the credit reporting agencies. This is known as a "hard pull" and each inquiry brings your credit score down by a few points. Usually hard pulls require you to give your permission for access to your credit so anytime you fill out a form on paper or online, expect a hard pull. By contrast, a soft pull refers to instances when you access your own credit file/score and these DO NOT impact your score. Other examples of soft pulls are those done by potential employers, apartments, and pre-approved offers from banks, credit card companies, etc.
• Keep different types of installment & revolving debt - The type of credit used makes up about 10% of your score. Generally revolving credit (such as credit cards) carries more weight than how you handle installment debt (car loans and mortgages).

I firmly believe that knowledge is power so now that you have the knowledge as far as those things which impact your credit score, you can prepare a plan of action to maximize it.

A few more tips to help you go forth in the most efficient manner possible:

• You can access a free copy of your credit report from each of the three main credit reporting agencies (Experian, Equifax, TransUnion) once every 12 months via ANNUALCREDITREPORT.COM - this is the only resource authorized for the free credit report by law and it is yours to use. There are numerous impostor sites out there each with some permutation of the word free, credit report, etc. but don't be fooled as they will charge you for a resource to which you're legally entitled at no charge.
• Even though you can access your credit report for free, you will likely have to pay for your score. There are numerous resources available which allow you to get all three scores at once, usually referred to as "3-in-1 credit report and score".
  
• A good rule of thumb is to use the free credit report once in the allotted 12 month period just to make sure that everything on your credit report is accurate both from the perspective of any mistakes which may have been made as well as for the purpose of making sure you have not been a victim of identity theft. Then about 6 months later go ahead and pay for the 3-in-1 report and score. The benefit of doing this is for you to be able to compare the information on your credit report from that which appeared 6 months earlier with the added benefit of seeing your score across each of the 3 credit reporting agencies.
  

5 Criteria to Consider When Shopping Around for a Balance Transfer Credit Card

If you're thinking about consolidating your outstanding credit card debt by transferring your high rate balances to a low rate credit card, make sure you take into account the following criteria in your selection process:

1. Promotional Rate: Whether it's 0%, 1.99%, the rate is only one of many factors to consider when choosing a balance transfer credit card.
   
2. Promotional Period: On the short end, it can be 6 months and on the long end as much as 21 months or more. Make sure you know when the promotional period expires down to the exact day. If a promotional offer says "Through April 2012" it means that the promotional rate is valid until the close of your billing cycle in the month of April 2012. Make sure you know when your billing cycles begin and end each month.
3. Balance Transfer Fee: Even if a card is offering you a 0% promotional rate, it will cost you money to transfer your high rate balance. On average the balance transfer fee is 3%-4% though there are cards with lower and higher rates. Make sure you know the answer to this question (it should be in the promotional literature but you can call the credit card company to ask directly). If you're looking to transfer $10,000 to a card which charges a 3% transfer fee, then you will be charged $300 just for making the transfer.
4. Annual Fee: Some cards charge an annual fee and some don't. Just make sure you know which group the credit card you happen to have your eye on fits into. If they do charge an annual fee, make sure you know the amount of the annual fee.
5. What happens after the promotional period expires? Your rate is going to change from a promotional rate to a standard rate. Make sure you know the standard rate. Also, make sure you know whether that rate is a fixed or variable rate. Usually in the case of a variable rate, the literature will provide specific information as to how the rate is calculated (prime rate plus some percentage). If you can't readily find the information, call the credit card company directly and make sure you know the answer.
   

There are numerous resources available on the internet so I encourage you to do your homework to find the option which is best suited to your needs. One resource which I find useful and which I recommend to my clients is Bankrate.com since you can further refine your search based on card type, credit score and issuer.

Some final thoughts about balance transfer credit cards:
1) As you would with any other credit card, make sure you pay your balance transfer credit card bills on time.
2) Be vigilant about your credit card usage as a whole while you're taking advantage of the balance transfer option. You want to pay as much as you can to the lowest rate card so that you can eliminate that debt the fastest. Keep a close eye on things to make sure that you don't drive up your other credit card balances. Once you pay off one credit card, keep up that same disciplined behavior with respect to your other credit cards until you've paid them all off successfully.

TOP 5 PERSONAL FINANCE TIPS EVERY BUSY WOMAN SHOULD KNOW…

This week I participated in a local area holiday trade show where I exhibited a table for my bookkeeping business, Empowered Bookkeeping. The event was held on the campus of a local school, designed mainly to attract the busy moms with children enrolled in the pre-school as well as a daycare program.

Amongst the various offerings and holiday goodies available at my table, I had prepared a handout for those ladies who stopped to chat, providing them with a list of the top 5 personal finance tips that I believe every busy woman ought to know. I pulled the list from a great website which I found to be a great resource for women in search of helpful information in the realm of personal finance. Feel free to check it out for yourself. The top 5 list is included for your convenience below:

1. Know that Credit Scores Affect More Than Interest Rates. If your score is less than 620, not only will you pay significantly more money for mortgages and other types of loans, but also more for your insurances. Your car, life and auto policy premiums will all reflect your credit. An adverse score may also keep you from leasing an apartment, or getting your dream job.

2. Don’t Skimp on Healthcare. Of all the ways to save money on monthly expenses, cutting your healthcare is the worst idea. Saving a few hundred dollars a year is hardly worth having to pay $50,000 in medical bills a few years down the road.

3. There’s a Big Difference between Saving and Investing. While saving money is something that should be done regardless (rainy day savings, retirement, etc.), investing should be done when you are relatively debt-free, especially when it comes to credit card debt. The average 18% annual interest paid by you on credit card balances will be hardly made up for in any investment opportunity.

4. Buy Life Insurance with the Hopes of Never Using it Life insurance should be purchased to help care for your dependants in the unfortunate event of your untimely passing- and that’s all. This way, mortgage payments, grocery expenditures and college fund contributions can continue without interruption.

5. Always Try to Pay More than the Minimum Mortgage Payment. By paying one additional principle and interest payment (mortgage payment minus any escrow payments) onto your mortgage balance each year, you will knock 7 years off the life of your note. It all adds up- to a lot!