Key steps to managing your financial profile

Here’s how:

1. Understand your credit score.

Your FICO credit score distills all the information in your credit report, producing a single number that lenders, employers, landlords and others use to determine your credit worthiness. Scores range from about 300 to 900, with the vast majority falling in the 600-700 range. A score below 620 indicates “high risk” and could make financing difficult to obtain, while a score of 750 or above may qualify for the best possible rates.

The key factors influencing how a credit score is determined are shown below in order of significance:

• Past delinquency: The FICO formula assumes that people who have failed to make credit payments in the past will continue to do so in the future.
• How you manage credit: If you consistently use the full limit on your credit cards, you are considered a higher risk than someone who uses only a percentage of available credit and therefore seems to be better at managing credit overall.
• Age of credit file: The FICO formula assumes that people who have managed credit for a long time are less risky than those who are new to credit accounts.
• Frequency of credit applications: The system considers those who submit several credit applications for credit cards, loans or other debt instruments during a short period of time to be a greater risk.
• Credit mix: The formula considers someone with only a secured credit card to be a greater risk than someone with a combination of installment loans (making fixed payments on a specific borrowed amount, such as a mortgage) and revolving accounts (making regular payments to free up more credit, as with a credit card).

2. Pay bills on time.

NEVER make late payments! Making timely payments is one of the most important and possibly among the easiest things you can do to improve your credit record. Set up automatic payments from your bank if necessary to make sure payments on credit cards and installment loans are made on time. This not only ensures a better credit score, but helps you avoid late fees and penalty interest rates as well.

3. Get copies of your credit report.

By law, each of the three major credit agencies — Equifax, TransUnion and Experian — must provide you one free credit report per year. Reviewing each of these reports helps you manage your credit score and ensures you are aware of any misuse of your credit through fraud or error.

• Order your free annual report at www.annualcreditreport.com or call +1 877 322 8228.
• Stagger the reports so you can check on your credit profile throughout the year. For example, order one of the three reports every fourth month instead of all three reports at once.

4. Know the legal steps.

Understand the legal steps you can take to improve your credit report. Both the credit reporting company and the information provider (for example, your credit card holder) are responsible for correcting inaccurate or incomplete information in your report. However, you need to submit requests for changing your report in writing, explaining why you dispute the information in the report. See Federal Trade Commission website at www.ftc.gov/bcp/edu/pubs/consumer/credit/cre03.shtm for information on correcting credit report errors.

5. Watch for credit repair scams.

The Internet, TV, newspapers and radio are filled with ads from companies offering to remove negative information from your credit report for a fee. They cannot legally “repair” your score and may in fact suggest that you commit fraud by creating a new credit identity. Only you can improve your credit score through discipline and patience. Start working to improve your score at least six months before applying for major financing like a practice acquisition loan.

More information is available from Live Oak Bank.