As strange as it seems, closing credit card accounts will actually hurt your credit score. 

Why does closing credit card accounts hurt your credit score?

As crazy as it seems, the credit rating agencies like to see several open accounts with balances and payments under control.

They actually penalize you if you close accounts because it now looks as though you have "less established credit" and are more of a risk! It doesn't make logical sense, but that's the credit rating/scoring game we all have to play!

For Example:

Let's say you have 5 credit cards

Account	Credit Limit	Balance
Visa	$5000	$2,500	making on-time payments
Master Card	$5000	$1,500	making on-time payments
Sears	$1500	$0
Kohl's	$1500	$0
Discover	$2500	$0

As far as the main credit reporting agencies (Experion, Eqiufax, Transunion)are concerned, your RISK RATIO looks like this:

Total Credit Available	$15,500
Total Balances	$4,000
Ratio	26%

In this example, you are a good credit risk, pay on time and therefore should have a good credit score. But, let's say you decided to cancel the Sears, Kohl's and Discover cards since they have a zero balance and you are trying not to charge up too much credit.

Now your RISK RATIO looks like this:

Total Credit Available	$10,000
Total Balances	$4,000
Ratio	40%

Now you are a greater risk as you are using almost 1/2 of your available credit! Make sense? 

What is the best way to manage your credit score and risk ratio?

It might seem foolish, but from a credit score perspective, the best way to improve your credit score is to "lightly" use several cards."Lightly" means charging less than 10% of the available credit.

Next, you need to PAY OFF THE FULL BALANCE EACH MONTH!

Sound dangerous?  You are right!  If you aren't disciplined, you could end up charging up your cards again.  However, if you can keep on task, your credit score will improve over time.

Not sure what your credit score looks like?

Go to www.creditkarma.com to see your score for free.

Want to see what is showing up on your credit report?

You can get a FREE COPY OF YOUR CREDIT REPORT FROM ALL THREE MAJOR AGENCIES once a year!

ARE THERE ERRORS ON YOUR CREDIT REPORT?

You can fix those errors and improve your credit score.  Check out this post --> 3 Tips on How to Repair Your Credit Report.

 

How to Improve Your Credit Score

When many people think of credit reports and credit scores, they see them as important if you want to apply for a loan. And of course they are important when you apply for a loan. But your credit report and score are also absolutely critical to getting rid of debt. With a good credit score, you qualify for lower interest rates that can help bring down your total interest charges. With bad credit, you’re stuck paying double digit rates. So let’s look at some tips and tools that can help you:

#1 Understand Just How Important Your Credit Score Is!

As I explained above, your credit score is an important tool in getting out of debt as quickly as possible. Don’t believe me?  Check out these statistics from myfico.com for individuals with a FICO score of 660 (fair credit) versus 760 (excellent credit):

• Mortgage: The average interest on a home loan today is about 4.766% for excellent credit, but 5.379% for fair credit.
• Car Loan: With a credit score of 760, you can expect a car loan interest rate of about 6.3%. With a score of 660, the rate increases to about 9.8%.
• Home Equity: Excellent credit can expect a rate of around 8% or lower, while fair credit borrowers will pay as much as 11% or higher.

As you can see, your credit score matters!

#2 Get Your Free Credit Report!

The starting point is to get your FREE CREDIT REPORT and check it for errors.

#3 Get Your Free Credit Score!

Next you should get your FREEE CREDIT SCORE. You can get this from annualcreditreport.com., but you will have to pay for it.

#4 Pay Your Bills On Time!

There are a number of factors that go into a credit score, but one of the most important is paying your credit bills on time. (such as credit cards, mortgage, and car payments) Do whatever is necessary not to forget a payment, and make sure you make the payment far enough in advance of the due date so that there is no chance it will be late.

#5 Don't Close Credit Accounts!

As a general rule, don’t close credit card and other revolving accounts. One of the factors in determining credit score is the amount of debt you have in comparison to the amount of available credit. The greater the available credit, the better. You can always cut up some of your cards if you don’t want to risk using them, but don’t cancel them.

 

There are only three states, Claifornia, Hawaii, and Massachusetts, that prohibit insurers from using credit information when calculating premiums.  If you live in one of the other 47 sates, your low credit score could affect your insurance premium. 

Why does your credit score affect your insurance premium?

The answer is simple.  Insurers have found a strong correlation between credit scores and insurance claims. It turns out, people with low scores are more likely than people with high scores to file claims. And when insurers looked more closely, they discovered that people who made late payments were the ones who tended to have more claims.

They didn't find as strong a correlation with other factors, such as taking on too much new credit, which other lenders care about because they worry that you won't be able to keep up with your payments.

Insurance companies use a different credit score to determine your premium

The version insurers use is slightly different from the one that lenders use. Both types of scores are based on information from your credit report, but insurers weigh the items differently. For example, insurers look a lot more closely at how you've managed credit over time rather than how much credit you've applied for recently.

Your insurance score can vary from insurer to insurer, based on the company's claims history. Insurance companies won't reveal all of the details of what goes into their scores, but you can get a version of your insurance score from TrueCredit, available through TransUnion for $9.95. The site provides separate scores for auto and homeowners coverage, which weigh the factors a bit differently, plus advice for improving your insurance score.

Even though your insurer may use its own calculation, the general advice can help anyone improve his or her score. Because each insuance company uses it's own calculation, it is important to shop around occasionally.  You can often find a better deal if you look.

Improving your score can make a big difference in your auto insurance premiums. If you need help eliminating your debt, there are several options available to you.  The Solutions Specialists at Debt Relief can discuss your situation with you and help you find the best option to get out of debt fast!

Give Us a Call --->>>   1-877-492-4109

Here are 5 tips that you can use to improve your credit score:

1. Check the accuracy of your credit report

Did you know that by law, you have the right to obtain a FREE credit report from each of the three national credit reporting companies every 12 months?

To have the best credit score possible, you must make sure that your credit report does not contain errors.  This is your responsibility!

To get your Free Credit Report:

• Go to Annual Credit Report and follow the instructions.

• Or, you can call 1-877-322-8228 to request that your report be mailed to you.

• Or, you can also complete the Annual Credit Report Request form and mail in your request.

2. Pay your bills on time

Although there are several factors in determining a credit score, one of the most important is making regular, on-time montly payments.  Most banks have automatic online payment, so take advantage of the service!

3. Understand how your credit score is determined

Basically, your credit score is base on how you answer these five questions:

• Do you pay your bills on time? If you are consistently late paying your bills, your credit score will suffer.

• How much outstanding debt do you have? If you have too much outstanding debt compared to your ability to repay (based on income, debt limits, etc.) then your score will suffer.

• Have you applied for several new accounts recently? Filling out several store card applications or trying to establish new credit with several charge cards in looked on as a negative for your credit report.

• How long is your credit history? Even thought you may never have had bad credit because you have never really had a loan or credit card, this is considered a negative on your credit report.  Try to establish one or at the most, two accounts and pay them on time and possibly pay them off in a few months.

•  What types of credit accounts do you have? Too many finance companies or high interest credit cards may hurt your score. On the other hand, a mix of installment loans (auto, home, etc.) and a credit card or two is much better for your score.

For more information, check out the Federal Trade Commission's website at Facts for Consumers.

4. Take the time and effort to legally improve your credit score

It is well worth the effort to improve your credit report and score!

Click on this link for step-by-step instructions on how to repair your credit report.

5. BEWARE OF CREDIT REPAIR SCAMS!

There might be a few legitimate credit repair companies, but I haven't ever found one!

You can find all you need to know about how to legally correct or repair your credit report at the FTC's site "Credit Repair: How to Help Yourself"

If you have some questions or need some more information, our Solutions Specialists are here to help.  Give us a call!

1-877-492-4109

OR, Click on the link below for a FREE PERONALIZED DEBT ANALYSIS!

photo by: kanonn