It has always been a good idea to keep tabs on your credit score. But for 2009, you may want to monitor your credit behavior more closely.
Fair Isaac, the company that created the FICO score, has been working on a new version of its landmark credit scoring method, called FICO 08. Fair Isaac says the new score will do a better job of predicting defaults than the classic FICO. TransUnion stated in their press release on January 29, 2009 that they are the first credit reporting company to offer the new method. Equifax is to follow sometime this spring, said Craig Watts, a Fair Isaac spokesman. Experian is to follow later on.
FICO 08 is more sensitive than the classic FICO to how much of your available credit you’re using. This is one of the biggest concerns for consumers because high balances are so prevalent right now. From the lender’s perspective, high balances mixed with a tough economy means a higher risk of default among customers. If your credit card issuer slashes your credit limit, you could see your scores plunge.
A good target is to use no more that 50 percent of your available credit limit at any time during the month; 30 percent is ideal and 10 percent is the best. So now may be the best time to launch a credit makeover. This will get you started:
You’ll need at least a 740 score for the best rates: The top credit score is 850, so keep that target in mind.
Budget: Start tracking spending and look for ways to shift over to paying off debt.
Keep an eye on your credit reports: Get your free reports from Experian, TransUnion and Equifax once a year at www.AnnualCreditReport.com .
Get on time and pay more than the minimum. Electronic bill payment may be an option.
Once you’re paid off, don’t close the account: Lenders want to see a long record of credit management.
The bottom line: Get those balances down.
For more information contact Rebecca Robins, CPA/PFS, CFP™, CA Insurance Lic#0D75745 at 661-222-2331, located at 25129 The Old Road, Suite 105 in Stevenson Ranch. Securities offered through Associated Securities Corp. (ASC), member FINRA/SIPC. Advisory services offered through Associated Planners Investment Advisory, Inc (APIA), ASC, David S. Reinders, CFP, Inc., Registered Investment Advisors. David S. Reinders, CFP, Inc. is not affiliated with ASC or APIA.