Credit score shouldn't rule all

November 18, 2007|By Humberto Cruz | Humberto Cruz,TRIBUNE MEDIA SERVICES

Ialways cancel credit cards I've stopped using, even if closing the accounts hurts my credit score by raising my debt-to-credit ratio. Why keep unneeded accounts open and risk identity theft?

I always pay my card bills in full. Your e-mail shows many of you carry a balance because you think doing so improves your credit score. It doesn't.

My credit score? The last time I checked two years ago it was over 800 (760 or above generally qualifies for the best credit terms).

To be sure, monitoring your credit history is important, and improving your credit score can save you thousands of dollars through lower interest rates. But in making our financial decisions, "we should not be ruled by credit scores," said Craig Watts, a spokesman for MyFICO.com.

A credit score measures lenders' perception of how likely a consumer is to pay back a loan on time. The FICO score, typically a number between 300 and 850 (higher is better), is derived from information in our credit reports.

By federal law, consumers can obtain a free copy of their credit report from each of the three agencies - Equifax, Experian and TransUnion - once a year (go to www.annualcreditreport.com). I always do, checking for accuracy. But reporting agencies can charge for credit scores. You can also buy them from MyFICO.com and other credit-monitoring services. For example, you can obtain all three credit scores and reports from MyFICO.com for $47.85.

When you close inactive accounts, your score might dip because any outstanding balance on other cards will represent a bigger percentage of your total available credit. But over time, your score will recover.

As to carrying a balance to raise credit scores, "that's not only wrong information, it's bad advice," Watts said. "Always paying your credit card in full every month is a terrific habit to get into."

yourmoney@tribune.com

Humberto Cruz writes for Tribune Media Services.

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