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Oscar Dominguez: Know, protect your credit score

Posted: March 17, 2009 12:11 a.m.
Updated: March 17, 2009 4:59 a.m.
 
In this competitive credit market, it's all the more important for Santa Clarita Valley residents to have a good credit score. Your credit score affects your candidacy for a loan and the interest rate and terms you receive on a loan. It could also make the difference between a landlord or homeowner choosing you as a tenant or an employer hiring you.

Many lenders determine credit risk by reviewing your FICO score, a credit score based on a mathematical formula developed by Fair Isaac and Company.

FICO scores are widely used by credit bureaus to gauge creditworthiness. These scores range from a low of 300 to a high of 850. The median FICO score in the U.S. is 723, according to myFICO.com.

While there is no silver bullet for raising your credit score overnight, there are steps you can take on a consistent basis to help improve your score, including:

n Know your score.

First and foremost, it's a good idea to know your credit score and familiarize yourself with your credit report.

Under federal law, the three major credit reporting companies - Equifax, Experian and TransUnion - are each required to provide one free credit report to consumers each year. While the credit reports are free, keep in mind that you may need to request and pay a fee to obtain your actual credit score.

Upon reviewing your credit report, if you find any mistakes, contact the credit bureau and the business that provided the information to the bureau with documentation to support your position. Note that companies do not necessarily report your credit history to the same credit bureaus, so your credit score may vary a bit with each bureau.

n Pay bills promptly.

According to myFICO.com, 35 percent of your credit score is based on your payment history. The importance of making timely payments cannot be overstated.

n Limit debt-to-credit available ratio.

Try not to use more than 30 percent of your available credit, as a higher percentage of debt can negatively impact your score.

n Be particular.

Be picky when applying for new credit, as generally, each potential credit card company may access and review your credit report and score, and a high frequency of applications and inquiries may negatively affect your credit score.

Opening new accounts will also shorten your average account age and may be interpreted as a sign of taking on new debt obligations by those making inquiries on your credit.

n Keep good accounts open.

Even if you don't use a couple of your older credit cards often, keep the accounts open, as closing multiple accounts can sometimes negatively affect your credit score.

In addition, closing an older credit card may condense your credit history and reduce your total credit availability, which translates into an increased debt-to-credit ratio.

In a market in which credit has become a scarce commodity for some people, your consistent attention to building and maintaining a solid credit score is essential.

Oscar Dominguez is vice president and branch manager of the Stevenson Ranch branch of Union Bank and the Valencia Bank & Trust branch. His column reflects his own views and not necessarily those of The Signal.

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