Archive for May 2nd, 2012

As retirees age the potential impact of poorly managed credit takes on a more serious and lasting significance.  Managing credit has more impact on a person than any decision they might make regarding investments, retirement planning or even income planning. 

Good Credit is an important asset to any consumer.  Credit bureaus gather information for lenders, collection agencies and court records.  This information is put into credit files called credit reports.  It is then distilled down into a credit score known as FICO. 

FICO Score calculates your score using the following weightings: 

10% Short term debt – Loans taken out in the past 12 months lowers credit scores. Applying for and opening several accounts lowers your score.  Paying off existing debt is better than opening new lines of credit. 

10% the type of debt – Payday loans and other high risk loans reduce rating; revolving and installment debt from banks and credit unions help raise credit scores. 

15% Length of credit history – The longer accounts are kept open and in good standing add to the score.  Young folks are at a disadvantage here.  

30% the amount owed – This is the relationship between a credit cards limit and amount outstanding. Those who have a high credit limit with low balance will get higher scores compared to those with high limit and high balance. Of course any accounts turned over for collection will damage the score. 

35% are payments made on time? The percentage of late compared to on time payments matter in this category. Both installment loans and revolving credit lines payment history are considered.  Closed account payment history could impact the score for 7 years from the date the account is closed.  

Check your credit reports at least annually at the only site authorized by the Federal Trade Commission www.annualcreditreport.com other sites may steal your personal information or mine it for marketing purposes.

  My Fico www.myfico.com/crediteducation offers very good resources for managing credit.