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CREDIT POINTERS AND YOUR FICO SCORE

Missing a Payment It goes without saying that late payments hurt your credit. What many people do not realize is how much. "Being reported as delinquent in paying your bills is the biggest whammy for your score," says Craig Watts, a representative for Fair Isaac, the company that calculates FICO scores. A single late payment could sink you by as much as 110 points, especially if your credit history has been good up to that point. (FICO scores range between 300 and 850; anything 730 and above is considered good.

Ironically, good payers are punishing the most. Consider this: A single late payment could drop a 749 score (with no prior late payments on file) by as much as 125 points, to anywhere between 629 and 679, according to Fair Isaac. However, if you have a score of 573, with five out of seven accounts having been late or in collections in the past, another late payment will not cause as much hurt. Your score could drop 35 points at most, but could also remain the same.

The bad news: These days, some creditors will report a late payment even if you were only late by a day or two, says John Ulzheimer, president of Credit.com Educational Services. (Most report only if you are 30 or more days late.) To be safe, be sure to pay your bills well in advance, even if you use online bill pay.
 

Maxing Out Your Cards Guess what: You can have a perfect payment history, never a day late on your cards, and still have a less than average score, says Fair Isaac's Watts. "You could lower your score from an excellent category to a good or fair category simply by using most of the credit available to you," he says. Indeed, maxing out your credit cards could bring your score down from 749 to as low as 609, according to Fair Isaac's FICO Score Simulator.

Again, consumers with already low scores will not be hurt as much. A 573 score that has negatives such as delinquent accounts could drop to 543 if all accounts are maxed out, but could potentially remain the same. To avoid mistakes, be sure to ask your credit card companies for the highest limit they will give you. (Contrary to what many people think, a higher credit limit can actually help improve your score.

Applying for Credit Applying for credit can be tricky. On the one hand, you need credit cards if you want to build a credit history and have a good credit score. On the other, applying for too many cards too quickly can hurt you. That is because each inquiry (when a creditor pulls your credit report and score to see if you qualify) drops your score a little, says Watts.

How much depends on your previous history. Ironically, the more you need to apply for new credit -- say you are just starting to build a credit history or you are trying to recover from a bankruptcy filing -- the more inquiries will affect your score. "If someone already has significant credit problems on their report and now they're shopping for new lines of credit, that are an indicator that they're a higher credit risk," Watts says. Same with people with little or no credit because there is not sufficient information on the report reflecting positive credit management to balance the negative impact of the inquiries.

What to do? "Take it slow," Watts says. "That's good advice for anyone, but especially if you're trying to recover or are new to credit."

Closing Credit Cards Many folks think closing unused credit cards will improve their credit score. Quite the opposite: Closing unused accounts in fact decreases your score, Watts says. Why? You are eliminating a chunk of available credit, which then automatically increases your credit utilization, or how much of your available credit you are using. Credit utilization is responsible for a hefty 30% of your credit score, so the effects of closing a credit card with a generous limit could be severe.

Moving How can the simple act of moving affect your credit score? It is simpler than you think. Even if you forward your mail to your new address, bills -- including utility bills -- can and often do get lost in the shuffle. "Suddenly, someone who's never been late has a collections account reported to the bureaus and the damage would be just as severe as with a delinquency”, Watts says. "A $5 library fine could suddenly lower someone's score by dozens of points."

The bad news: You would think a collections agency would call you about that unpaid bill before reporting it to the bureaus, but that is not always the case, says Credit.com's Ulzheimer. "They'll take the lower-dollar collections accounts and just report them to the bureaus without even contacting the consumer," he explains. "It's easier to report to the bureau rather than wasting time trying to collect $80.” Then when you try to buy a house or car and be denied because of the collections account, you would have to track down the agency yourself and pay up. An efficient business model, to be sure, and even more reason to be vigilant about paying your bills.

EVERYONE KNOWS BUILDING good credit takes patience and persistence. If you pay your bills on time and keep your card balances low over the long haul, you will be rewarded with a solid score. However, what about quick fixes? Many of these tricks are frauds. However, there are a few sneaky ways to legitimately give your score a boost when needed. Here are five ways to do it:

1. Increase your credit limits
Credit utilization, or how much of your available credit you are using, affects 30% of your credit score, otherwise known as your FICO score. It is not surprising, then, that credit experts insist you keep your balances low if you want to increase your credit score.

However, here is a trick: Asking your creditors to increase your credit limits will have the same effect. Should the creditor agree to do it, the increase in available credit will automatically lower your credit utilization ratio, says Craig Watts, a representative for Fair Isaac, the company that calculates FICO scores. Just how much of a boost your score will get is hard to predict. It depends on many other factors, including how long you have been using credit and how responsibly. Using up those higher limits to get into more debt is not a good idea.

2. Be an early bird
So you pay your credit cards in full each month. That is great, but as far as your credit report is concerned, you are still in debt. Why? Because each month creditors report to the bureaus your latest statement balance — i.e. what you racked up each month before you pay your bill in full, explains Watts. That dollar amount will appear on your credit reports and will be picked up by the FICO formulas. So if, for example, the balance on your latest statement was $2,000 and you sent the credit-card company a $2,000 check, your credit report will show you had a $2,000 balance for that month, not $0.

A smart way around that: Pay your card bills before the next statement date. That is typically mentioned on top of the bill, right alongside your due date. Because of the grace period creditors give — usually 20 to 25 days — your statement date is typically 20 to 25 days before your actual due date. (You can find out when your next statement date is by logging onto your credit-card account online or calling your creditor.) Once you know your statement date, pay off the full balance a day or so in advance. The result: The creditor will report $0 to the bureaus, bringing your credit utilization as low as possible and improving your score.

3. Use old cards occasionally
Obviously, the longer your credit history, the higher your score can be. (That is assuming you are doing all the right things like paying your bills on time.)

What you may not know: If you have not used a credit card for more than six months, the creditor may start reporting the account as inactive. That does not mean the account will disappear from your report, says Watts. However, when an account is inactive it is not factored into all FICO formulas. One example: The credit utilization formulas typically do not pick up inactive accounts. Even if your balances are low or $0 on these cards, that will not be reflected in your credit score. "If you have open credit-card accounts, using those cards occasionally will keep them active with the bureaus and contribute to your credit score," Watts says.

4. Piggyback
If your credit history is not very long or spotless, adding a credit account with a long, positive credit history to your report will certainly boost your score. Nevertheless, how do you all of a sudden add an old account to your report?

It is easy. Just ask someone — a friend, relative or someone you trust and who trusts you — to make you an authorized user of a credit card they've had for a long time and handled responsibly, says credit expert Gerri Detweiler, author of "The Ultimate Credit Handbook.” "If I get your card with my name on it, the whole entire history from day one will show up on my report as well," she says. "That's pretty beneficial. Even if they had it for 20 years, I'll get that 20 years of history."

The good news: Because you are only an authorized user, you are not liable for any card balances, Detweiler says. In addition, the original cardholder does not need to give you the card itself, so they can be sure you will not rack up debt in their name.

5. Mind your utility bills
It used to be that you had to skip paying your utility bills for months for that negative information to pop up on your credit report. Most utility providers — from phone companies and wireless carriers to electric suppliers — only reported delinquent accounts, Watts says. Not anymore. An increasing number of utilities have started reporting to the bureaus the same way as creditors do, which means paying your electric and cable bills on time has to be just as important as your credit-card bills.

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