December 11th, 2009
2010 Credit Score
Consumer credit scores in 2010 have a better chance to stay credit-healthy with positive economic changes for the coming year and, thanks to FICO’s recent disclosure of credit scoring secrets, a better understanding of how negative actions impact credit scores.
2009 was an economic whirlwind with the shrinking credit market, unstable housing market, scarce jobs, and financial hardships for companies and families alike—and consumer credit scores reflected these rough economic times. The average credit scores for Credit Karma users in 2009 steadily decreased all year, reaching a high of 678 in February down to a low of 671 in November.
2010, however, might be the year to ring in a credit-healthy climate. The forecast for next year is buzzing with talks of economy recovery and anticipation for big legislative changes: the deadline of the Homebuyer Tax Credit could spur enough home buying and selling to get the housing market back on its feet; round two of Obama’s economic stimulus program emphasizes job creation and business tax cuts that will hopefully lower unemployment levels and boost industry confidence; the CARD Act takes full effect in February with credit card industry reforms and cardholder protections that could positively influence consumers’ responsible use of credit.
However, don’t expect 2010’s economic changes to improve your credit score just yet; that is ultimately up to you. FICO’s disclosure of the “damage points” of common credit missteps—like late payments or maxed out credit cards—can help you ditch the worst of your bad credit habits so you can start fresh in 2010. This glimpse into the closely-guarded credit scoring algorithm may not prevent consumers from going into bankruptcy, but it can help them make a better decision when faced with a bad situation.
Here’s more ways to protect your credit score as one of your top New Year’s resolutions:
- Stay current with your credit cards’ policy changes. The CARD Act’s effective date is fast approaching and issuers are scrambling to change credit card terms. As a responsible cardholder, keep up with any changes to your card policy so your credit score doesn’t get dinged for any maxed out credit cards, cut credit limits, or closed accounts. Take a close look at any notifications in the mail from your issuer, and if you are in good standing with them, call your issuer and dispute the changes to your cards’ terms and conditions.
- Check your credit report for errors. No one is going to check your credit report for you. The responsibility is on you to check your credit report for any inaccuracies, such as erroneous late payments or old collections accounts that have been resolved , that could drop your credit score by 50 points or more. Dispute errors with the credit bureaus to keeping your credit report accurate and up-to-date.
- Prioritize and plan a budget. Sign up for one of the many free personal finance management websites, assess your current spending habits, and determine a realistic monthly budget based on your financial situation. Budget bills like mortgages, auto loans, and credit cards, and keep a schedule of your bill due dates to avoid missing a payment and protect your credit history.
- Pay down credit card debt. The average consumer had $7,879 in credit card debt in November, according to Credit Karma, plus the tab racked up during the busy holiday season, and the average consumers is kicking off 2010 deep in a mountain of debt. Avoid credit mistakes like a 30-day late payment, which will ding your score 60-110 points, and debt settlement, which will damage your score 45-125 points. Now that you know the consequences, start paying down your existing debt to protect your credit score from future risks.
Keep monitoring your financial health by checking your credit score periodically, especially if you are preparing for a financial change like buying a home or taking out a loan in 2010. Knowing how certain financial transactions will affect your credit score with the credit simulator will help keep you on track to good credit. Once you build up to an excellent credit score, be as diligent as ever because the higher your credit score, the more damage a negative action will have. A healthy credit score is in your financial future, you just have to earn it.
At Credit Karma Blog, what goes around comes around… So what do you think about this post? Agree, disagree, or have something more to say? We’d love to hear your reactions!
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