This last one may need some explanation. The FICO formula will reward consumers who have a mix of credit, but Fair Isaac and Co., which created the FICO formula, prefers to remain vague about what this means. Generally, however, it's thought that the firm wants to see different categories of borrowing, such as a mortgage, credit cards and a car loan on a credit report, even if some of these debts have been paid off.
It's possible to boost a FICO score, but if you attack this challenge logically, you might fail. Using too much common sense could cripple your score. Here are some things you can do:
- Pay off debt differently. Consolidating your plastic debt onto one card can give you a psychic boost, but this strategy could ding your credit score. Why? What matters to the credit gods is how far you are from your credit ceiling on each card. So if the card that's absorbed all the debt has a supersized balance, you could be penalized. It's better to have smaller balances on a variety of cards rather than a monster balance on a single one.
To enhance your FICO score, pay down the cards that are closest to reaching the credit ceilings. Aim to at least get all your balances low enough so that none of them exceed 30 percent of their credit limit.
- Don't cancel cards. I always assumed that holding too many cards would wreck a credit score, but Weston insists that closing credit card accounts can never help your score and might maim it. Shuttering accounts will shrink your available credit and make any balances loom larger. And tearing up older cards can especially penalize you because the formula takes into consideration how long you've had them.
- Don't charge too much. If you pay off all your balances every month, your score might not be as high as you'd assume. Even if you write checks for your bills on the same day you receive them, chances are, your credit report will still show balances on your cards. The balance you owe on your card's closing date is typically what gets reported to the credit bureaus. So if you charge huge amounts every month, that's what the credit bureaus could see - not the prompt payments. And it's those misleading balances that FICO will probably be playing with.
The best way to avoid this - and I know this will sound perverse - is to eliminate the bill before you get it. Pay the bill online a few days before the closing date. Or here's another more satisfying idea: Let's storm Fair Isaac's corporate headquarters in Minneapolis and tar and feather the computers.
Finally, once you're ready to check your credit score, the easiest place to find it will be at www.myfico.com. Considering how we tend to be jerked around by the credit industry, you won't be surprised when I tell you that the service isn't free.