7 personal finance tips from Ruth Hayden

In case you missed Midmorning’s financial educator Ruth Hadyen on the radio today, here is some of the advice she offered to listeners:

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1) What’s considered a good credit score is creeping up. The high-600s used to be considered good, but now you need to be in the 720-760 range.

2) The two most important factors in achieving a good credit score are on-time payment of bills and the relationship between your credit use and credit limits. The more headroom the better.

3) Eighty percent of credit reports have errors, according to some reports. You need to visit AnnualCreditReport.com to check for errors. First, make sure all your personal information is correct — spelling of your name, accuracy of address, etc. Then, check your actual financial records for errors. If you find errors in your personal info, contact the credit reporting bureau. For errors in your financial records, contact the creditor first. If you get no satisfaction, you can add the disputed information to your credit report.

4) One way to build good credit: Take out a small loan from a bank or credit union but don’t spend the money. Make regular payments from that pool of money.

5) Think of the credit report as a picture of you being passed around. How can you make it look better? Change the things over which you have control. You can’t change the system, so how do you work within it?

6) It’s better to have two cards or stay well under the limit on one card, then to just have one card that’s close to being maxed out.

7) Credit card balance transfers can be a good way to help pay off debt if you’re not just moving debt around. Playing a debt shell game doesn’t look good to credit bureaus. Consolidate to lower rates but then begin chipping away at the balance.

  • bsimon

    Those are good tips for managing and/or repairing one’s credit score. But a good personal finance tip to start with is:

    Spend less than you earn.

  • matt

    I appreciate the tips, but what is the formula? I mean, the Bureaus know the variables in determining your credit. They also know the mathematical weight they place on each variable. What percent is of the final score is on-time payments? If you had $10,000 in credit line and used none of it, how would that impact your score? This process is simply too mysterious. We need to make it more transparent so people know the variables and adjust accordingly.

  • Barry S

    Per Matt’s question:

    I believe the relative weight to each component of your FICO score is the following:

    35%-Pmt History

    30%-Credit Utilization (Amt Owed vs Availability)

    15%-Length of credit relationships

    10%-New Credit

    10%-Type of Credit

    Obviously, the first two have the most impact on your score….how you pay and the unused credit availability you possess.

    FYI – The exact formula is not provided by the Fair Isaac Corporation (hence FICO).

    Food for thought: one tip I tell my clients is to only buy a car for cash; meaning, keep your current car (or buy a used one), “pay yourself” over the next 3 years or so, and only when you have enough cash to pay for your next car should you buy one. After the first time, you’re effectively financing your cars in advance from that point forward instead of paying interest to the bank, and you have more leverage when you walk in to buy your car when paying cash. You’ll never have a car loan and aren’t sacrificing anything except for the first 3 years.