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The www.FedPrimeRate.com Personal Finance Blog and Magazine

Friday, October 28, 2005

A 20 Point Jump In My FICO Credit Score!

I've been waiting for my FICO credit score to hit the 700 mark for over 2 years now. Well, it looks like it's finally happened! Yesterday, I checked my score and found that it had jumped from 686 to 706! Yippee! Pretty exciting stuff!

In October of 2004, my score was 628. I really don't know if it is a real accomplishment to go from 628 to 706 in a year, but I think it is.

How did I finally get over the 700 mark you ask? Well, I recently made a nice sale of one of my online properties which left me with a decent chunk of cash to play with. After making some investments, I was left with about $4,000. I could have put that money into the bank, but I realized that it made more sense for me to use the money to pay down some of my personal and business debts. Why? The answer is quite simple:

The money I am saving in interest charges that I would have paid to the credit card companies is greater than any interest I would earn by putting the money away or even by making some safe investments (like a Certificate of Deposit.)

And, of course, paying down my debts would cause my FICO score to rise, and an improved FICO score has many obvious benefits.

I did not realize, however, that my FICO score would jump by 20 points as a result of my actions. I was expecting a 10 point increase, or maybe even a 15 point increase at most.

I think that other factors may have contributed to this favorable jump in my score. Perhaps I had reached a 2, 3 or 4 year anniversary with one or more of my creditors this month, and that could have been a contributing factor.

Well, whatever the reasons, I am still seeing some somewhat discouraging language in my credit report, i.e:

1. The proportion of balances to credit limits on your revolving/charge accounts is too high.

Analysis of consumer credit behavior repeatedly finds that owing a substantial balance on revolving/charge accounts (Visa, MasterCard, Discover, American Express, Diners Club, department store cards, etc.) relative to the amount of revolving/charge credit available to you represents increased risk. In fact, the level of revolving debt is one of the most important factors in the FICO score. The score evaluates your total balances in relation to your total available credit on revolving/charge accounts, as well as on individual revolving/charge accounts. For a given amount of revolving credit available, a greater amount owed indicates a greater risk, and lowers the score. (For credit cards, the total outstanding balance on your last statement is generally the amount that will show in your credit bureau report. Bear in mind that even if you pay off your credit cards in full each and every month, your credit bureau report may show the last billing statement balance on those accounts.)


2. The length of time your accounts have been established is relatively short.

This factor is based on the age of the accounts on your credit bureau report (the age of the oldest account, the average age of accounts, or both). Research shows that consumers with longer credit histories have better repayment risk than those with shorter credit histories. Also, consumers who frequently open new accounts have greater repayment risk than those who don't.

Source: FairIsaac

So it would seem that I still have a long way to go before I will reach my ultimate goal: debt free, with an 800+ FICO score. Wish me luck!

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