Posted September 9, 2009 by Cerissa Lair

Your own credit crisis... and how to avoid one!

Instead of spending twelve years of my education learning things about Texas History, endoplasmic reticulum, and factorials, I wish that we all recieved at least a crash course in things that grown-ups need to know;  things like how to change a tire, what to do at jury duty, and how to keep from screwing up your credit.  For sake of time, I will simply focus on the last of these.  Credit.  We have all been inundated with news of the federal credit crisis, but maybe you are having one of your own. I spent an hour and a half with Eddie Johansson of Credit Security Group and learned so much about what it takes to improve your credit score and more importantly how to keep from screwing it up in the first place.  So here's just a little bit of what I learned in FICO Score 101. 

First of all.  FICO is the only real score.  It's named after Fair Isaac and Co and any other score is a FAKO!  If you want your true FICO score go to MyFICO.com, which is the place to get your real score online.  It will be a soft inquiry, meaning that it won't affect your credit to check your score. 

I'm fortuante enough to have "perfect" credit, but did you know that just one 30-day late payment will knock my score down 40-60 points?!  That means that you could go from perfect credit (680+) to just good credit (620) that fast!  Other factors that cause negative outcomes to your credit report are recency and severity.  New accounts lower scores.  NEVER open a new account within 8 months of a major purchase (like a home). 

Also, late payments (even one) say to a lender "I'm Broke!!!".  DON"T BE LATE. 

Another thing to consider are revolving accounts.  An example is a credit card.  This is the best test of risk of a person because it basically tells if a person knows how to live within their means.  It also tells if you overspend and purchase more than you can afford without the means to pay it back.  Would you loan money to a person with a history of that?  I sure wouldn't. 

So looking at a credit card (or any revolving account), the Debt-to-Limit ratio is what will influence your score.  Your Debt-to-Limit ratio= current balance/Limit.  So whether you have a limit of $50,000 and a balance of $25,000 or a limit of $200 and a balance of $100, it's still the same for your credit because it's equal to 50%.  If you have a ratio of 5% or less, you will have no credit score loss. 

I've probably lost you by now, but seriously, the best advice is to keep out of credit trouble.  You do not have to be another one of Dallas' $30K Millionaires.  Be smart now and it will pay dividends in the long run.  But if you do need help, call my buddy over at Credit Security Group at 214.295.4459.  Eddie can help you figure out how to make your credit look better. 

You can have all the money in the world, but without a good credit score, good luck getting a loan these days!