Your Financial Future

Recently the average FICO score hit an all-time high for Americans. FICO is the most used credit score in the country. The average score is now 706. FICO scores can range from 300 to 850. A good score is usually above 700. People who have a score above 760 are considered excellent.

Credit scores are important for a number of reasons. First, they may determine whether or not you get a loan. People with a higher score often get a lower interest rate. This can make a big difference in the final cost of your purchase. Credit scores are also sometimes used by insurance companies and when you apply for a job.

People with good credit are often considered more responsible and less likely to create undesirable outcomes. Having a good score is an important part managing your financial wealth.

The higher scores now are probably a reflection of the low unemployment rate. Jobs are plentiful and there has been some upward wages because of a shortage of good employees. There was also recently a change which stripped all civil judgements and tax liens from credit reports.

 The number one factor that affects your credit score is paying your bills on time. You need to make at least the minimum payment by the due date. Hopefully you pay a lot more than the minimum on credit cards because it can take years to pay off at only the minimum.

Credit scores also depend on the amount of utilization of your credit limits. If you have a $5,000 credit line, people with the highest scores are only using about a third of their line. This applies mostly to credit cards and lines of credit. Mortgages are going to be utilized much more at the beginning of the loan and have a much longer maturity. If you have a credit card that you are no longer using, it may help your score to keep the account open. This improves your utilization ratio. Opening new credit lines hurt your score for a short period of time.

The reason these factors are considered is lower utilization indicates your finances may be in better condition and you are less desperate. Some factors that are not considered when determine your credit score is the amount of money you earn and your net worth.

You should check your credit report every year at the official government website This is free to do every twelve months. You can see your credit history from all three big credit bureaus. This is especially important because of all the identity theft that we hear about almost every week. Your credit report will show you what accounts have been opened in your name. If there are any listed you did not open, notify the credit bureau immediately.

Managing your credit is an important financial activity that makes your life less stressful. Do it regularly and make it a routine part of your financial life.

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