KEEP YOUR CREDIT RATING HIGH!
Keep Your Credit Rating High!
Charles R. Wold, CPA/PFS
I had a sage business teacher in high school that preached the value of building and maintaining a high credit rating. “You must charge and pay promptly to build a good credit rating.” Convinced of his wisdom, I obtain a credit card with a local department store with a credit limit of $75.00! That allowed me to charge and make prompt payments and I have found following his advice has made credit available over the years for business and personal.
You too may have found the value of having a high credit rating. Some, however, have found the misery of having a poor credit rating. They are forced to pay a high interest rate, or in some cases, unable to obtain credit at all.
The credit rating has changed over the years, both good and bad. Today there is more than simply charging and making prompt payments to obtain and maintain a good credit rating. The more you understand the system, the easier it is to achieve a good rating.
Today credit bureaus (the companies that determine your credit worthiness) use a formula created by the rating service Fair, Iaac & Co., called the “FICO” score. In essence, your creditworthiness is reduced into a single three-digit number between 300 and 850! If you have a rating of 720 or more, you should be getting the best deals. If you are below that, it may be costing you. So the name of the game today is to keep your FICO score high. We have had some client situations where reason has been overruled by the client’s FICO score. This makes getting financing for a project more difficult and costly. So getting and maintaining a high FICO score will be worth the effort.
For the most part, getting a high FICO score is a matter of understanding the system, and than working with. Here are the things you should be aware of:
- Don’t pay late! Many times a busy doctor may pay late, not because he/she doesn’t have the money, but because is short on time. Put as many bills on automatic pay to reduce this problem.
- If you have a late notice on your credit report, ask the lender to remove it as a “goodwill adjustment”. If you can’t get it removed, dispute the notice by demanding in writing for the lender to provide evidence supporting the bad report. While on dispute, it will not factor into your FICO score.
- Never use more than 50% of your credit limit on any single credit care, even if you pay off your balance every month. FICO scores reward those who use very little of their available credit. If you have unused credit cards, consider how losing that credit line will impact your overall credit use ratio.
- Don’t just apply for credit cards. The older your average account, the better for your score.
- Another reason to avoid applying for unneeded credit cards and loans is that every time you shop for credit, the lender will check your report. Inquiries hurt your score. If you are shopping for credit, do it within 14 days. A quick group of inquiries counts as only one.
While there is more to the FICO score, following the above tips will give you access to credit when you need it and give you the best rates.
Charles R. Wold, CPA/PFS is CEO of Wold Consulting, PC, a consulting and accounting firm focused on healthcare practitioners. He may be reached at 480-763-9653 or chuck@askwold.com
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