What's Not In Your Wallet

If your cursed Capitol One Visa and MasterCard accounts are your oldest, they are the ones that helped you establish your FICO scores so far. Longevity has meaning! Closing them may reset the clocks on your credit report, and if they are the oldest cards in your wallets, then they, despite Capitol One's treachery, provide much of the underpinnings of your lofty FICO scores.

The most important step in understanding your credit score is to know what a credit score is and how it is determined. A FICO credit score comes from the Fair Isaac Company. Three quarters of all lenders use the FICO credit score when considering requests for loans or credit which is why this is an integral part of understanding your credit score.

Given below is a rough formula used to calculate your score:

~ 35% on your payment history

~ 30% on the amount you currently owe lenders

~ 15% on the length of your credit history

~ 10% on the number of new credit accounts you've opened or applied for (fewer is better)

~ 10% on the mix of credit accounts you have (mortgages, credit cards, installment loans, etc.)

The best way to improve your credit score is to pay your bills on time and manage your credit wisely. The most important item is your mortgage. Make sure you pay it on time every month in order to maintain a good credit score. Installment loans, where you borrow a set amount to buy new furniture or appliances, for example, are given more weight than credit cards.

Keep your spending well below your credit limits, because your FICO credit score will definitely be lower if you are maxed out on your credit cards. Don't have more than two or three credit cards because a large number of credit cards also lowers your FICO score. Don't apply for several credit cards at one time; it makes lenders nervous and will lower your FICO score. Other factors also affect your score, such as home ownership, which raises it, and moving frequently, which lowers it.

Here is my recommendation. You and your spouse open separate credit card accounts at your credit union and use those cards instead. Put the Capitol One cards in a drawer, and pull them out once every six months and buy something small to keep them active. Pay them off quickly so Capitol One doesn't earn the 18.9% they figure you'll pay.

Then, when one of those obnoxious Capitol One advertisements come on TV and asks, "What's in your wallet?" you and your husband can yell back, "Not you anymore, dummies!" smugly, knowing that although you are not paying their unjustified interest rate, Capital One is propping up your credit score.

Bills.com has comprehensive information about credit scores and articles on how to understand credit scores. You can read more at the Bills.com Credit Score Report and Information page.