If you aren't already familiar, the credit score is a single
number used by credit-card companies, auto- and mortgage-
lenders, and even many landlords, to assess a borrower's
worthiness.
Fact is, everyone should be zealous about establishing and
maintaining a high credit score, since it can save thousands
in interest payments. "Credit scores have become the No. 1
piece of data on which people are judged to determine
whether or not they get approved for loans and how much
they pay. Consider that someone with a top-notch credit
score could pay 5.9% today for a 30-year fixed-rate
mortgage, while someone with a poor score would pay
10.5%, according to Fair Isaac Corporation, a California-
based company that calculates the scores used by most
banks and mortgage lenders. On a $200,000 30-year
mortgage, that's a difference of nearly $231,556 in interest
payments over the life of the loan.
Given the importance of maintaining a good credit score, it's
downright infuriating that so many credit reports (which is
what your score is based on) contain errors. According to a
2004 study by the Public Interest Research Groups, or PIRG,
as many as 79% of credit reports have errors — 29% of
which are serious enough to potentially result in a credit
denial. "If you have a very good credit score or a very bad
credit score, you're probably being treated the way you
deserve to be treated," says PIRG's Ed Mierzwinski, a
consumer advocate. "But if you're in the middle, the odds are
good that mistakes in your report will affect your score
marginally enough to cause you to pay too much."
number used by credit-card companies, auto- and mortgage-
lenders, and even many landlords, to assess a borrower's
worthiness.
Fact is, everyone should be zealous about establishing and
maintaining a high credit score, since it can save thousands
in interest payments. "Credit scores have become the No. 1
piece of data on which people are judged to determine
whether or not they get approved for loans and how much
they pay. Consider that someone with a top-notch credit
score could pay 5.9% today for a 30-year fixed-rate
mortgage, while someone with a poor score would pay
10.5%, according to Fair Isaac Corporation, a California-
based company that calculates the scores used by most
banks and mortgage lenders. On a $200,000 30-year
mortgage, that's a difference of nearly $231,556 in interest
payments over the life of the loan.
Given the importance of maintaining a good credit score, it's
downright infuriating that so many credit reports (which is
what your score is based on) contain errors. According to a
2004 study by the Public Interest Research Groups, or PIRG,
as many as 79% of credit reports have errors — 29% of
which are serious enough to potentially result in a credit
denial. "If you have a very good credit score or a very bad
credit score, you're probably being treated the way you
deserve to be treated," says PIRG's Ed Mierzwinski, a
consumer advocate. "But if you're in the middle, the odds are
good that mistakes in your report will affect your score
marginally enough to cause you to pay too much."
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It's suggest consumers check their credit report at least
once a year. And if they're planning a major purchase, like a
house, they should pull their report and score roughly six
months ahead of time, so they can fix mistakes or take
strategic steps to push their score higher, if needed. Since
there are three credit bureaus — each with its own credit file
— consumers should check all three reports before taking
out a loan. Frustratingly, many mistakes will appear on just
one of the reports. So just because one of the bureaus says
a consumer is clean doesn't mean he or she is in the clear.
Here's what you need to know about credit scores, along
with some point-boosting strategies.
Know the Score
The most widely used credit score by lenders is the FICO
score, provided by Fair Isaac Corporation, and available to
consumers at Fair Isaac's consumer Web site, myFico, as
well as Equifax, one of the three credit bureaus. Similar
scores can be obtained from the two other credit bureaus,
TransUnion and Experian.
A FICO score can range from 300 to 850. The very best
rates often go to people with scores above 760, but lenders
may consider a score of 700 to be good (the median score
is 725), says Craig Watts, Fair Isaac's spokesperson. If your
score is below 620, it's time for concern. "As you start
dipping below about 600, you see this dramatic increase [in
lending rates]. So with every 20 points — going to 580, 560
— you're ramping up aggressively.
Obviously, the first step to increasing your score is to know
where you currently stand. The good news is pulling your
credit report and score is easier and cheaper than ever.
Even if you've recently been denied credit, are unemployed
and plan to apply for a job within 60 days, think you may be
a victim of fraud or are on welfare, you're still eligible for one
free report per 12-month period from the web site Annual
Credit Report. Residents of Colorado, Maine,
Massachusetts, Maryland, New Jersey and Vermont are also
entitled to one free report per year. Lucky Georgia residents
get two.
Adding Points
It is indeed possible to increase your score by a significant
amount — even over a short period time.
To see which factors affect FICO scores, look at the pie
chart above. Unfortunately, there are no tricks or gimmicks
that will give your score a quick lift: Mostly you just need to
use common sense. Not surprisingly, the most important
thing to do is simply pay your bills on time. Just one late
payment could cause your score to drop by as much as 100
points, says Fair Isaac's Watts, although it will vary
significantly based on an individual's credit history. The
more recent the late payment, the more it will affect your
score. Other tips:
Pay down your cards
Shocker: Reaching the upper echelon of your card limit
doesn't do you any good. Nor does having many accounts
with balances, even if they're small. So pay down any
balances you can.
Fix mistakes
If you notify a credit bureau of a mistake on your report, it
has 30 days to complete an investigation. This entails
getting in touch with the lender to verify that the information
is accurate. If the lender can't confirm (or doesn't respond),
then the information is removed. If you have paperwork
proving that information on your account is false (such as
divorce papers proving you aren't responsible for new debts
incurred by your ex-husband), send it to the credit bureaus.
Just be sure to keep a copy of all correspondence.
Hang on to your old card
Loyalty is rewarded, so you may want to hang on to old
cards, even if you rarely use them. That's because 15% of
your score is based on the length of your credit history, and
that includes the age of your oldest account as well as the
average age of your accounts. Translation? Lenders don't
want a customer who's just going to move on once that nice
introductory offer runs out.
According to Watts, keeping your credit-card accounts open
can also have a positive impact on a different scoring factor
— your credit utilization rate. Since this rate is calculated by
dividing your outstanding debt by your credit limit, having
more unused credit on your credit report helps to lower that
rate. The lower this rate, the better your FICO score.
You may have heard of other ways to boost your score —
like spreading your debt onto more credit cards rather than
keeping high balances on a few. But the truth is, that won't
always work to your advantage. That's because your FICO
score isn't the only score on which you're judged — it's
simply the only one made available to you. There are many
other scores out there, including behavioral scores, revenue
scores and the highly controversial insurance scores. Many
lenders also have their own proprietary scores.
once a year. And if they're planning a major purchase, like a
house, they should pull their report and score roughly six
months ahead of time, so they can fix mistakes or take
strategic steps to push their score higher, if needed. Since
there are three credit bureaus — each with its own credit file
— consumers should check all three reports before taking
out a loan. Frustratingly, many mistakes will appear on just
one of the reports. So just because one of the bureaus says
a consumer is clean doesn't mean he or she is in the clear.
Here's what you need to know about credit scores, along
with some point-boosting strategies.
Know the Score
The most widely used credit score by lenders is the FICO
score, provided by Fair Isaac Corporation, and available to
consumers at Fair Isaac's consumer Web site, myFico, as
well as Equifax, one of the three credit bureaus. Similar
scores can be obtained from the two other credit bureaus,
TransUnion and Experian.
A FICO score can range from 300 to 850. The very best
rates often go to people with scores above 760, but lenders
may consider a score of 700 to be good (the median score
is 725), says Craig Watts, Fair Isaac's spokesperson. If your
score is below 620, it's time for concern. "As you start
dipping below about 600, you see this dramatic increase [in
lending rates]. So with every 20 points — going to 580, 560
— you're ramping up aggressively.
Obviously, the first step to increasing your score is to know
where you currently stand. The good news is pulling your
credit report and score is easier and cheaper than ever.
Even if you've recently been denied credit, are unemployed
and plan to apply for a job within 60 days, think you may be
a victim of fraud or are on welfare, you're still eligible for one
free report per 12-month period from the web site Annual
Credit Report. Residents of Colorado, Maine,
Massachusetts, Maryland, New Jersey and Vermont are also
entitled to one free report per year. Lucky Georgia residents
get two.
Adding Points
It is indeed possible to increase your score by a significant
amount — even over a short period time.
To see which factors affect FICO scores, look at the pie
chart above. Unfortunately, there are no tricks or gimmicks
that will give your score a quick lift: Mostly you just need to
use common sense. Not surprisingly, the most important
thing to do is simply pay your bills on time. Just one late
payment could cause your score to drop by as much as 100
points, says Fair Isaac's Watts, although it will vary
significantly based on an individual's credit history. The
more recent the late payment, the more it will affect your
score. Other tips:
Pay down your cards
Shocker: Reaching the upper echelon of your card limit
doesn't do you any good. Nor does having many accounts
with balances, even if they're small. So pay down any
balances you can.
Fix mistakes
If you notify a credit bureau of a mistake on your report, it
has 30 days to complete an investigation. This entails
getting in touch with the lender to verify that the information
is accurate. If the lender can't confirm (or doesn't respond),
then the information is removed. If you have paperwork
proving that information on your account is false (such as
divorce papers proving you aren't responsible for new debts
incurred by your ex-husband), send it to the credit bureaus.
Just be sure to keep a copy of all correspondence.
Hang on to your old card
Loyalty is rewarded, so you may want to hang on to old
cards, even if you rarely use them. That's because 15% of
your score is based on the length of your credit history, and
that includes the age of your oldest account as well as the
average age of your accounts. Translation? Lenders don't
want a customer who's just going to move on once that nice
introductory offer runs out.
According to Watts, keeping your credit-card accounts open
can also have a positive impact on a different scoring factor
— your credit utilization rate. Since this rate is calculated by
dividing your outstanding debt by your credit limit, having
more unused credit on your credit report helps to lower that
rate. The lower this rate, the better your FICO score.
You may have heard of other ways to boost your score —
like spreading your debt onto more credit cards rather than
keeping high balances on a few. But the truth is, that won't
always work to your advantage. That's because your FICO
score isn't the only score on which you're judged — it's
simply the only one made available to you. There are many
other scores out there, including behavioral scores, revenue
scores and the highly controversial insurance scores. Many
lenders also have their own proprietary scores.
| Got a question? Call me at (888) 956-7060 or contact me NOW! |
| Paul Spenard |
| The Local Home Loan Specialist |
|
| Increase your scores almost overnight! |