How to raise your credit score
What’s your credit score?
You probably don’t know. And this is a case where what you don’t know could hurt you.
Credit scores give banks, mortgage bankers, credit card companies and other lenders an instant snapshot of your trustworthiness when it comes to repaying debt.
With high credit scores, you can get loans at lower interest rates.
With lower scores, you can still borrow — but it’ll cost you more.
According to the company Fair Isaac, whose FICO scores are widely used by lenders, a home buyer in the highest score category of 760 to 850 can now get a mortgage at an average 6.29 percent interest rate.
A buyer with a FICO score in the 620-639 range, by contrast, will have to pay 7.88 percent for the same mortgage, for a monthly payment of $1,567.
That is an essential start, but it’s not the whole picture, said Gerri Detweiler, author of "The Ultimate Credit Handbook" and a credit expert on EverydayWealth.com.
Fair Isaac’s formula also looks at amounts owed, the length of your credit history and other factors.
Fair Isaac, whose scores range from 300 to 850, compiles three scores per borrower, based on reports from the three major credit bureaus: Experian, TransUnion and Equifax.
In addition, the three credit reporting bureaus recently combined forces to create their own scoring measure, the VantageScore, which looks at much of the same data as the FICO.
It’s a good idea to check your credit reports regularly, to catch any mistakes that might creep in, such as typographical errors or debts that were actually taken out by your free-spending cousin with a similar name.
If you plan to apply for a car loan, mortgage or other loan, you should probably check your credit score, too.
You can estimate your credit score with a calculator at bankrate.com; go to "credit cards," then "calculators" and click on "How’s your credit?"
To raise your scores, Detweiler, Fair Isaac and other experts recommend:
• Pay your bills on time. This is the big one.
• Keep credit-card balances low. You should owe no more than about 25 percent of your available revolving credit. So if you have three credit cards with a combined credit limit of $20,000, keep your balances below $5,000.
• Pay off debt; don’t just move it around.
• Don’t close unused credit cards unless you fear an ex-spouse will use the card to run up bills. Closing a card will reduce both your overall credit limit and — if you drop an older card, as people tend to do — the length of your credit history.
• Don’t open a number of new credit cards you don’t need, just to increase the amount of credit available.
• Don’t worry that checking your credit report will hurt your score; it won’t.
• Don’t assume that just because you have a good income, you have a high credit score. The score considers only your use of credit. (However, lenders will also probably consider your income.)
• Think twice before co-signing for a loan or credit card for someone else, because that person’s payment history becomes part of yours.
• If you have paid off your mortgage and car loans, as many retirees have, you should consider using a few credit cards regularly if you are sure you will pay them off on time. This will give credit bureaus the data needed for a credit profile.
• Pay your parking tickets and other bills. If you have a small dispute over the amount of a bill, pay the bill and fight it out later rather than allow it to damage your credit score. In some cases, even unpaid library fines can be held against you. “Those little things can be important,” Detweiler said.
- Source: NorthJersey.com, May 31, 2006
