The quest for 850: your credit score guide

As consumers, we’re constantly told to watch and protect our credit score because it affects the cost of our purchases made on credit. A perfect FICO score (which is the most widely used) is 850.

Here’s how it’s derived:

• 35 percent payment history

• 30 percent amounts owed/credit utilization ratio

• 15 percent length of credit history (the age of your accounts)

• 10 percent variety of credit accounts held (credit cards, installment loans, etc.)

• 10 percent applications for new credit (hard inquiries)

Here are tips to increase your score.

Payment history is the most important element, weighing in at 35 percent, so always pay your bills on time. Late payments, collections, charge-offs, judgments and bankruptcies all reduce your credit rating. For example, a reader shared with me that he had been sent to collections (erroneously) over a $535 bill and it impacted his credit score over 40 points.

The amount of debt category is the second highest, ranked at 30 percent. So if you carry a lot of credit card debt, your score will suffer. In addition, if you carry balances on multiple cards, it can also hurt your credit score so don’t max out or carry high balances on your credit cards. You might also ask for credit limit increases (if appropriate) to help improve this part of your score.

In the length of credit history category, open dates are important here. The longer you’ve had credit accounts open, the more points you’ll earn in this category. Opening new accounts could negatively impact your score since open dates of accounts are averaged. So, avoid opening new accounts and avoid closing old accounts as long as they are paid off and there are no annual fees.

Having a variety of different types of accounts shows a healthy, diverse mix of credit. Having both revolving debt (credit cards) and installment debt (car or mortgage loans) add to the diversity. If you have new credit or bad credit, check out: Credit Card Insider.

It will tell you how to build and manage your credit.

Finally, any recent searches for credit comprise 10 percent of our credit score. The more inquiries you have, the riskier you’ll look to lenders. So be choosy about signing up for new credit because any “hard” inquiry will signal that you’re actively looking for credit. The good news is if you’re looking for a car, these inquiries will get lumped together so they won’t impact your score as much. To improve your score, don’t apply for too many credit cards — especially if you think your chances of approval are slim.

While 850 points is a perfect score, anything over 800 will get the best interest rates available in today’s market. It’s also important to watch your credit score closely because it could be an indicator of suspicious activity. If you don’t already monitor your rating, check with your bank to see if they offer a credit check service. Many do for free.

•••

UNCLAIMED INSURANCE ALERT: Lost, unclaimed or forgotten life insurance policies are more common than you might think. Considering there are more than a thousand insurance companies in the United States alone, it’s no wonder finding an insurance policy could be a difficult task.

According to a CBS 60 Minutes investigation of the insurance industry, there could be up to $3 billion in unclaimed benefits nationwide.

Sometimes loved ones take out insurance policies and forget to provide the details to the executor or executrix of the will. They leave behind documentation, hoping this will be enough. This is what happened to our reader. His father passed away and the son came across an insurance policy in his father’s belongings. He wasn’t sure if the policy was still valid.

Our reader called the insurance company. It turns out the insurance company had changed hands since the policy was taken out and of course, now our reader is getting the runaround. He still hasn’t gotten a firm answer on the validity of the policy and whether or not he is owed any money.

And believe it or not, insurance companies may not be obligated to let beneficiaries know of the existence of a policy, even when the company is aware of the insured’s death. Companies hide behind privacy policies and because there is no public database available to trace these policies, it makes it easier to the insurance companies to get away with what is essentially stealing.

The best way to locate a policy is to make sure all your records are up to date and accessible. Make sure these documents are disclosed in your will. Let someone you trust know about these documents, including your lawyer, financial advisor and/or personal representative, if you have one. There is no sense in paying premiums for a life insurance policy if your beneficiaries aren’t going to benefit from it.