Friday, April 3, 2009

Raising Your Credit Score: A follow up

As a follow up to yesterday's post about improving your credit score. The comment below is from Gary Loechle, Vice President of Commercial Services for Hawthorne. Gary will soon be retiring from Hawthorne after a successful career in banking that included many years as Vice President of Lending at Hawthorne and other financial institutions in our area. Gary had this to say:

"Sandy, Interested in another point of view?

Your two tips are correct. Prompt payments and low balances.

However, in this time of uncertainty, I would have to think long and hard before advising friends to drain savings to pay off a credit card.
Traditionally, the credit score is adversely affected when the balances owing on credit cards are higher than 80% of the credit limit.

While I would always recommend keeping a tight reign on the use of plastic, I would suggest that maintaining, and if possible, building a savings balance is probably more critical today as long as the credit card balances are less than 80% of the credit limits and within our ability to make the payments while saving.

The problems today that would affect my thinking include:

Credit card companies and some home equity lenders have been reviewing accounts and reducing credit limits. Therefore, I would prefer to rely on my savings rather than find the credit, which I thought would be there for emergencies, had evaporated.

Another concern would center on the possibility that a person could lose his/her job. If so, the credit would quickly dry up anyway.

So, the more urgent needs to maintain a good credit score during these times of economic uncertainty would include:

Always make scheduled payments promptly;

Keep credit and charge card usage in check. Use them for emergencies only. Definitely, keep balances below 80% of the credit limits.

Make sure the person considers himself a creditor that also must be paid something each payday, in the form of a savings deposit.

The equivalent of three months of expenses in savings is a very worthy goal. But, for most of us, it will take time to build up the savings to that amount. But, if we don’t start on it today, we’ll never achieve it.

Just a thought from Uncle Gare."

Thanks Gary!

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