Credit Report Q&A

How to get Financially Fit

Dear myFICO,

My New Year's resolution is to get physically fit, but this year I'm also very committed to getting financially fit because I am planning on purchasing my first home. I understand managing my FICO score is an important step in this process, but I'm not sure what I need to do. Do you have any advice around how to manage my FICO score more effectively?

Monica
San Diego, California

Dear Monica,

First, just as you would read a nutrition or exercise book to understand what it takes to get in good physical shape, you need to educate yourself about what it takes to get in good financial shape. The key to this is in understanding what factors have the greatest impact on your FICO® score. To help you get started we have several free online resources

  • An Understanding Your FICO Score booklet that will tell you all about FICO-healthy behavior and explain credit reports and FICO scores in great detail.
  • An Education Center that includes calculators and other home loan information that help you make the right choices when the time comes to purchase or refinance your home.
  • A Support Center that provides answers to Frequently Asked Questions as well as contact information for customer care.

Second, just as you might put yourself on a schedule to start jogging one mile and then gradually increasing the mileage, it's also important to set financial goals for yourself and stick to a plan as much as possible. This sounds simple, but when you've got bills to pay and credit card balances looming, it can be challenging to understand where to even begin – Do I pay this credit card off first? Do I consolidate my debt? Can I afford that new stereo I've had my eye on for months?

When purchasing a new home or indeed applying for any type of credit, it is very important to get the best interest rate possible. Higher FICO scores generally mean lower interest rates. This can save you thousands of dollars over the life of your loan. In general, a score of 760 and above will qualify you for the best interest rate on any type of loan. If you are already above this score, great job. Keep doing what you’re doing! If you’re not, the top 3 priorities and goals you should focus on are:

  1. Make all of your monthly payments on time.
    Most people with high scores have no late payments on their credit reports. Late payments have less effect on your FICO score over time, so even if you have late payments now, if you get current and stay current, your score will gradually go up.
  2. Keep credit card balances low.
    Most people with high scores use less than 10% of their available credit. This means that if there is a $10,000 limit across all of your credit cards, a high scoring profile would have a balance of $1,000 or less.
  3. Only open new accounts when necessary.
    Most people with high scores have opened no more than one account in the past year.

We understand that it's not always easy to juggle financial priorities, but if you put a plan in place, your financial health will get stronger over time and you will be able to throw your improved FICO score muscle around to get the interest rates you deserve and save money!

Sincerely,
myFICO Team

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myFICO is the consumer division of FICO. Since its introduction 20 years ago, the FICO® Score has become a global standard for measuring credit risk in the banking, mortgage, credit card, auto and retail industries. 90 of the top 100 largest U.S. financial institutions use the FICO Score to make consumer credit decisions.

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