Seasons Greetings Everyone:

It’s tax time, and for those of you expecting a refund, congratulations! Remember, though, that a tax refund is not a bonus or windfall. It’s your money and always was. So, before you start looking for deals on vacations or new electronics, do yourself a financial favor. Think carefully about your current credit situation and how to get the most value out of this “accidental” savings account:

Pay down debt

If you have high credit card balances, paying them down could result in an immediate credit score bump. Here’s how it works.

Utilization makes up 30 percent of a credit score. Utilization is the amount of credit used in relation to the amount of credit available. For example, if you owe $100 on a credit card with a $1,000 credit limit, the utilization ratio is 10 percent. Utilization is also calculated overall. Therefore, if you owe $100 but have several credit cards with a combined credit limit of $10,000, the overall utilization is 1 percent.

Both numbers matter. Your credit score takes a hit when any card is maxed out, even if other cards have low or no balances. How much of a hit? That depends on many factors and FICO doesn’t share specific information about its algorithm. A credit counselor will help you understand the factors in your own credit file that contribute to your score.

Some consumers and credit advocates claim that utilization should be no higher than 30 percent. Others say 7 percent. Aim for a low percentage that continues to go down, and apply the goal to individual accounts, as well as overall. Lower utilization leads to higher credit scores.

Pay off collections

The newest FICO scoring model offers an advantage to consumers who pay off collection accounts. In years past, the presence of any collection account – paid or not – caused the credit score to dip. Nowadays, although accounts stay on the consumer’s credit file for the length of time allowed by law, FICO ignores paid collection accounts for the purpose of calculating the credit score. (Collection accounts generally stay on a consumer’s credit file for seven years, plus 180 days, from the date the account became delinquent.)

Anyone looking for credit score improvement should consider paying off outstanding collection accounts. When doing so, keep careful records and proof of payment as old collection accounts are often resold to new debt collectors. Re-selling of the debt does not legally restart the 7 ½ years-on-the-credit-file clock.

[Sources: Equifax, FICO, Creditrepair.com]

Take a look at this video to get an idea of some of the tools we have made available to assist you in boosting those credit scores. Remember if you are purchasing a home, vehicle or refinancing…..

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Rey & Vernice Dauphin -CEO

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