The year 2015 is just around the corner. Amidst all the holiday shopping and celebrations, it’s easy to overlook the vulnerability of your credit during these busy periods. This is partly due to neglect, and partly because you’re much more likely to use your credit cards. With this knowledge, make sure the close of 2014 doesn’t jeopardize your credit score in 2015. Here are some key considerations for the holiday season to help you understand how your credit score could fluctuate.
The initial and most crucial step to gain control is to understand the elements of your credit. Don’t let misconceptions about the well-known FICO score deter you from taking the right measures towards achieving a superb 800+ score. The FICO score ranges between 350-850, and it’s an algorithm that determines the risk of someone defaulting on a loan. While commonly referred to as a credit score, there are many variations of this score marketed as such by providers and websites attempting to sell you monitoring tools. Your actual FICO score is fluid and can change anytime a report is pulled, indicating that your score can swing from 800 to 600 or the reverse within a day.
Your credit score depends on some specific factors: 15% is based on the average length of time you’ve held credit. Regardless of your credit status, opening a secured or unsecured credit card begins the process of building your credit history. If you are yet to have any credit cards, take the initiative to establish new credit immediately. If your credit history is well-established, avoid the temptation to close long-standing accounts in 2014 in hopes of improving your score in 2015. Store these cards away rather than closing them to maintain your credit history.
Furthermore, 30% of your FICO score depends on your current balance compared to your credit limits. Try your best to keep your balances below 30% ($300 balance on a $1000 limit card), or disperse your balances among several cards and credit lines. Neglecting balanced credit usage is a common mistake during the holiday season as people often charge their entire holiday shopping onto one or two cards, leading to overextension or high balances for several months.
Payment history accounts for 35% of your score. This reflects how well you’ve managed payments on all previous and ongoing accounts. Late payments can negatively affect your score, and collections or judgments can cause a serious impact. Consider communicating with credit bureaus if errors occur, as they may be willing to remove a few negative remarks if there is no pattern of default. If you have debts in collections, negotiate and clear them before 2015.
Your mix of credit contributes 10%. Financial institutions prefer borrowers who demonstrate regular payments like car payments or mortgage. Meanwhile, new accounts or inquiries for new accounts make up 10% of your score. Multiple inquiries for new lines of credit may raise concerns about your financial stability with credit bureaus, triggering a warning.
By grasping these straightforward factors that affect your FICO score, you have the ability to improve your score considerably in the next 30 days, ensuring continuous credit enhancement rather than compromise, particularly as we approach a new year.
Have a joyous holiday season, and remember to monitor your credit.
