New Jersey bankruptcy Article

Lenders, insurers, landlords and others will charge you more or flat-out reject you if you show up with a low FICO score. Here’s how you may be doing yourself harm.
By Jeanne Sahadi, CNNMoney.com senior writer

1. Be a big spender at the wrong time

The bigger your total balance as a percent of your total credit limit across all your credit cards, the lower your score will be.

Rex Johnson, founder of credit union consulting firm Lending Solutions Consulting, has spent years studying FICO credit scores – the most widely used among lenders. Scores range from 300 to 850 – the higher the better, with anything above 760 being the most desirable.

Johnson estimates that you lose 1 point for every percent of your credit limit that you use. So if you have a total credit limit of $10,000 and have an outstanding balance of $4,000 (40%), your score would be 40 points lower than if you had a $0 balance.

Ideally, credit experts say, your never want your balance to exceed 30 percent of your credit limit.

It’s always good to pay off your balances every month. But creditors may take a few weeks or even a couple of months to report your payment to the credit bureaus.

To boost your score: Don’t charge anything for at least 60 days before applying for a loan, Johnson said. That way it’s likely that all the payments you’ve made to date will be reflected in your credit score by the time a lender requests it.

If you can’t pay off your total balance in full, at least keep it under 30 percent of your total credit limit.

2. Be a payment-slacker

Sending in your loan or credit card payments late can really hurt.

Rex Johnson, founder of credit union consulting firm Lending Solutions Consulting, estimates that when you’re 30 days past due and your balance is still unpaid, your score could take a 60-point hit. That kind of drop could mean a much higher interest rate on loans you take out (see table at right).

Late payments from your past that you have since paid off will have less and less of a negative effect on your score as time goes on. Johnson estimates that on average past delinquencies that have since been resolved might cost you 15 to 20 points.

To boost your score: Pay your bill in full and mail it as soon as it arrives, or at the very least the minimum due. Set up automatic online bill payments so you’ll never be late. Or, if you are late one month, be sure to pay off what you owe as soon as possible.

3. Be too thin

When it comes to your credit record, fat is good, emaciated bad.

Even if you’re the most responsible, on-time, in-full bill payer on the planet, your credit score won’t be as high as it could be if you have just one credit account.

The reason: Your credit profile is too thin and lenders ideally like to see a potential borrower responsibly managing a mix of revolving debt (such as credit cards, where you can reuse the credit after paying it back) and installment debt (such as a car loan or most mortgages, where you pay the same amount every month for a certain period).

To boost your score: Consider opening another credit-card account or two, or taking out a car loan or small bank loan.

4. Be too young and eager

Old credit accounts count more than young ones in your credit score.  Lenders prefer borrowers who have responsibly managed the same accounts for years. That’s a more reliable indicator of creditworthiness than a few months of exemplary behavior on a new account. Accounts open less than six months will hurt your score somewhat, according to Rex Johnson, founder of credit union consulting firm Lending Solutions Consulting. Those open six months or more won’t, while those open at least two years will help your score.

Lenders also don’t like to see a borrower who’s gone on a credit binge, applying for a lot of new accounts or loans in a short period.

Every time you apply for new credit, your score may be dinged by 5 points, Johnson said. That’s not the case, though, if a broker shops around for the best loans on your behalf. In that case, if they approach multiple lenders who all pull your credit report, that will only count as one inquiry so long as they all do so within a two-week window.

To boost your score: Avoid applying on your own for a lot of loans and credit cards, particularly in a short period. And avoid excessive card-hopping.

5.  Be too tidy

The bigger your balance relative to your credit limit, the lower your score.

But while it may be tempting to close out a credit card account when you transfer the balance to a lower- ate card, you may inadvertently hurt your score. That’s because your total balance stays the same but your credit limit goes down when you close an account.

Say you have three credit cards with a combined credit limit of $24,000 ($8,000 each) and you owe $6,000 total. Your balance represents 25% of your credit limit. If you then close out one of your accounts, your credit limit goes down to $16,000 but your debt is still $6,000, which now represents 37.5% of your credit limit.

To boost your score: Don’t close unused accounts when you transfer debt.

6.  Be too nonchalant

You may be a great credit risk, but your score won’t reflect that if there are errors in your credit report. The last thing you need is to have someone else’s delinquencies wrongly assigned to you.

Or you may think you’ve got great credit, but don’t realize that your spouse has been hiding debt from you, and killing your score in the meanwhile.

Unless you make yourself aware of what’s in your credit report a few months before applying for a loan, you’ll have no idea how a lender will perceive you, rightly or wrongly. And you won’t give yourself the opportunity to improve your score.

To boost your score: Order a free credit report once a year from each of the three major credit bureaus, and make sure they’re accurate. Order one every four months by going to annualcreditreport.com <http://www.annualcreditreport.com/> or calling 877-322-8228.

Two annoying but true facts: Credit scores aren’t free, and the credit bureaus don’t share information on you, so your credit reports and the scores based on them may vary. So if you’re planning on applying for a mortgage or other big loan, you might do well to order a the 3-in-1 deluxe package from myFICO.com <https://www.myfico.com/Products/FICOThree/Description.aspx> for $47.85. That will include your credit reports from all three credit bureaus as well as the FICO scores based on those reports.