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Tuesday, December 27, 2005

FICO Credit Score Back Down To 688: Good Grief!

Some good news and some bad news today. First, the bad news: my FICO credit score has dropped down to 688. My FICO score had recently jumped from 686 to 706, but it's back down again, and I have to deal with the fact that I am once again a sub-700 borrower! The FICO system is just too cruel! I am placed in the near-elite class of 700-720 FICO borrowers, only to have my status taken away from me 2 months later. It's not right!

Actually, I'm not surprised about this recent change to my FICO score. My baby girl--who is growing at an incredible rate (she's off the height chart @ the doctor's office)--needed new clothes, so I charged some baby shopping. I also invested in a bunch of space heaters for my home, an investment that has already shaved plenty off my heating bill, so no regrets there. Lastly, I took advantage of a "3.99% APR until transferred balance is paid in full" balance transfer offer from Citibank, which, again, will save me plenty in the long term, but may have contributed to the latest (temporary!) decline in my credit score (sometimes transferring a credit card balance helps my credit score, but then sometimes transferring a similar balance with similar circumstances hurts it. Makes me wonder if some credit card companies/banks have more "weight" than others...Hmmm...)

Don't get me wrong: I know that 688 is still a good FICO score, a score that will still get me a favorable to excellent rate on just about any loan product, so I'm not really crushed. Furthermore, I know that within a few months, I'll be back here reporting that my score is back up above the 700 mark, as I plan on making some large payments to certain creditors in the near future, and I don't plan on missing any credit card or car payments! I am no way near ready for my own home, so I can wait.

The good news is that I have completely paid off 2 credit cards by taking advantage of the Citibank balance transfer offer I mentioned above. I managed to pay off 2 relatively high balances, and, even though those balances have been transferred to one of my Citibank credit cards, my Citibank card is still OK, as my balance on that card is still below the halfway point of my total credit line, and that's important.

And kudos to Citibank for offering a credit line increase in conjunction with the "3.99% APR until transferred balance is paid in full" balance transfer offer. That's what basically sold me on using Citibank, as opposed to a going with a competing bank or credit card company. By offering a credit line increase with the balance transfer deal, Citibank is basically communicating to me, "yes, we want your business, and we know that having a high credit card balance can hurt your credit rating and put you at risk of "maxing out" your account. So we'll give you a credit line increase with this deal, so that you don't have to worry about that stuff."

What am I going to do with the credit card accounts that I've managed to pay off? Well, I'm keeping them, as it's the right thing to do. Bottom line: Lord FICO, master of my credit destiny, likes to see accounts that are "old." The benefits of having long-standing relationships with creditors outweigh the benefits gained, if any, by canceling the accounts.

I'm hoping that banks will be offering some exceptional balance transfer offers in January; I predict that transferring credit card balances will be all-the-rage next month, as holiday shoppers try their best to avoid the interest charges related to all that shopping done for Xmas/Hanukkah/Kwanza 2005.

Peace and prosperity to all in 2006!

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Saturday, October 29, 2005

A Test of My New Credit Score Results In Failure!

As I reported here recently, my credit score jumped from 686 to 706 this month. Emboldened by this development, I decided to test the power of my new FICO score by applying for a new business credit card.

I'd had my eye on one particular business credit card offered by Chase for about 8 months; I was attracted to it's exceptionally low interest rate (APR) and excellent benefits. I hadn't had the courage to apply for the card before because I knew that a card with such a low interest rate would not be easy to get: I knew that only folks with truly excellent credit would be able to get this card and enjoy its benefits.

Well, my application was rejected, and I'm certain that my personal credit history and my personal FICO credit score influenced the outcome of the application. Darn' it!

Of course I'm disappointed that I won't have this credit card in my wallet--Chase was offering an exceptionally juicy 0% balance transfer offer with the card!--but I'm not devastated. I currently have 2 business credit card accounts and I am quite satisfied with both. However, the bottom line is that if my recently rejected application had instead been accepted by Chase, I would have been able to save some cash in the long term by a) taking advantage of the 0% balance transfer offer by transferring one or two balances to the new card and b) having and using a business credit card with a fixed annual percentage rate that is as close to the prime rate as I have ever seen.

Looks like I flew too close to the sun this time around. But I'll apply again in about 6 months. Wish me luck!

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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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