Debt Free

In this day and age your credit and credit score contributes mightily to your ability to constructively function in society. Although many of us would like to get a big spread in Montana and go back to the cash and barter system, that's not happening any time soon. All too often, cash transactions aren't even an option anymore. Want to rent a car with cash? Good luck! Like to get a hotel? You'll need a credit card, unless you like those places on PCH you can rent by the hour. How about something for a bit longer stay, like an apartment? You'd better have credit, and it better be pretty good too. Want to rent a 16' ladder for that weekend gutter cleaning project? Bring some plastic, you'll need it.

Given that sliding someone a few Jacksons is less likely to facilitate getting you what you need these days, you might need a credit card or two, even if you strive to keep the balances low, or better yet, stay debt free except for the occasional card use while traveling or other spending anomaly that may crop up. The better your credit score, the more likely you'll be to get a card with favorable credit terms. In addition, when you get any other credit, such as a car loan or mortgage, you'll do so at much more advantageous terms (to you, not the lender).

Here is a technique that can work to help get you those extra points on your FICO score you're looking for. It's known as advanced credit profiling. Your FICO score, as most of you are aware, is the score used by lenders to judge your supposed credit worthiness. One of the components of your FICO score is what type of credit you have. This is known as your credit profile. The more well rounded your credit profile, the better risk you present to a prospective lender, and that is reflected in your score. Different types of credit need to be present in your profile in the correct proportions to maximize your FICO score. Refining your credit profile to more closely reflect what lenders are searching for will give your FICO a bit of a boost. How much of a boost you get will depend upon your current credit profile and how much room for improvement you have.

Other things are determinants in your credit profile as well. Lenders are very sophisticated today and look at multiple factors when determining the prospective creditor’s profile. According to Jay Peters at the Credit Secrets Bible , they even take into account things such as professional publications you may be subscribed to. While such subscriptions will not actually raise your credit score, the subscriber lists from some such publications are used by lenders as another factor to determine whom to offer credit. Your credit reporting agency information is checked against other factors to give the prospective lenders a more complete picture of your finances. Professional journal and association subscriptions and membership is just one other such factor. The makeup of one’s credit profile is a key determinant in who gets what credit offers and when.

Other information used in your credit profile, also known as your credit risk profile, are things such as your occupation, age, gender,  neighborhood, homeownership status, types of credit you have, etc. The number of variables used by some companies can run into the hundreds. Companies use sophisticated data mining software (and you thought the NSA had the good stuff) to perform the multiple cross references required to make credit risk assessments. Obviously factors such as age and gender are difficult to change, in the short term anyway. The key is to do what you can to improve your credit profile, such as make sure your credit accounts are distributed to different types of accounts. Each lender is different with respect to exactly what they are looking for with respect to your credit profile, but most will want to see some sort of balance i.e. multiple types of credit.

This may be just another tool in your box to help your credit picture and another step closer to becoming debt free.