Oprah's Debt Diet Step 7: Prioritize Your Debts and Raise Your Credit Score
What is a credit score?
A credit score, sometimes referred to as a FICO score, is a numerical representation of the information in your credit report. FICO credit scores, which look a lot like SAT scores, range from 300 (though it's rare to see one below 500) to 850 (equally rare). These scores pack a powerful punch. Last year, 25 billion credit decisions were made based on FICO scores alone. These weren't just decisions about whether you'd be approved for a new credit card but:
- How much you can borrow
- What sort of interest rate you'll pay
- Whether you'll qualify for an increase in your credit line
- Whether you'll qualify to rent an apartment
- Whether you can get a cell phone
- Whether you'll qualify for a cash advance
- Whether you'll actually get the credit card for which you're "pre-approved"
- Whether an employer will hire you
- What sort of auto insurance premium you will pay
In other words, your score is a really powerful piece of information. And because what it really is, for lack of a better description, is a snapshot of your borrowing and bill-paying behavior over the previous 24 months, as time goes by you have the power to change it for the better.
35% of your score is based upon how well you pay your bills.
30% of your score is a measure of how much credit you have available to you and how much of that credit you're using.
10% is based on your search for new credit—how recently have you opened (or inquired about opening) new accounts?
10% is the composition of your file. What percentage of your file is bankcard debt and what percentage is installment debt?
15% is a measure of the length of your credit relationships. How long have you had the cards in your wallet?
How to Boost Your Credit Score
Print the FICO-raising advice sheet.
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Step 8: Understand your spending issues...and save!
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