Credit score is more than a number

Americans love to shop. Whether shopping for a genuine need or enjoying some retail therapy; shopping is a national pastime. The average annual expenditure per American consumer rose 6.3 percent in 2004, according to results from the Consumer Expenditure Survey released by the Bureau of Labor Statistics of the U. S. Department of Labor.

Individuals should be saving more and spending less - but if you are spending, what should you look out for in terms of long-term financial stability? Bottom line - your credit score.

Retailers are upping the ante in the pursuit of consumer dollars and a host of retailers and service companies offer consumers the option of saving an additional 10 to 15 percent off the purchase if you open a company credit card account. This may seem like a money-saving idea, but these gimmicks may actually hurt you in the long run by lowering your credit score.

Mike Sullivan, director of education for Take Charge America, a non-profit credit counseling company, suggests that consumers manage their credit scores, beginning with monitoring their shopping habits. "Many factors negatively affect your credit score, such as opening several lines of credit in a short period of time or failing to make payments before deadlines," Sullivan said. "Managing your credit score could make all the difference when applying for a loan to finance a home or new car."

Currently, the median FICO score is 723 (www.myfico.com). Scores may range from 300 to 850, with higher scores depicting a better credit rating. Lenders and credit companies will be more likely to offer you a loan or line of credit if you have a score in the 600 to 700 range because your score connotes that you pose less of a risk in terms of repayment of the loan in a timely and responsible fashion. The higher your credit score, the more likely you are to receive lower rates.

According to Sullivan, credit cards are important assets but must be opened judiciously and managed properly. He offers the following tips and ideas to prevent low credit scores and disappointing loan rejections:

  • Minimize the number of credit inquires by creditors. If you request your own credit report you are not docked points. Inquires by others remain on your report for two years.
  • Keep older credit cards instead of newer ones. A longer credit history indicates financial stability if it shows you make payments.
  • Open a minimum of new accounts and refrain from opening several accounts in close time proximity, this is particularly important if you have a credit history of less than three years.
  • Keep unused credit cards instead of closing them. Closed accounts remain on your report.
  • Keep in contact with creditors during difficult financial times. If you are late on a payment due to illness or unemployment, write a brief explanation.
  • Be careful when becoming a co-signer; any activity on the account will show up on your credit report - even if you didn't spend any of the money.
  • Make payments on time. Late payments and other negative records will remain on your report for seven to 10 years.
  • Keep the number of installment loans at a minimum. Too many installment loans can lower your score since the payments remain the same until balances are paid in full.
  • Pay off debt rather than moving it around.

January 1, 2006