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How to Evaluate and Raise Your Credit Score
Why do some people get offers for pre-approved credit cards
and others don't? What do car dealers know about your financial
health that you don't know? The answer is your credit score.
Your credit score is a number generated by a mathematical
formula to estimate how likely you are to pay your bills. Based
on the information in your credit reports from the three credit
bureaus, Equifax, Experian, and TransUnion, your credit score has
been a factor in your ability to qualify for loans and good
interest rates for more than twenty years. Lenders compare your
credit report with millions of others to determine your
score.
While there are a variety of credit scoring methods available
to lenders, the most widely used is the FICO score. Based on a
scoring system developed by Fair, Isaac & Co., FICO scores
range from approximately 300 to 800 points and are provided to
lenders by the three credit bureaus. You also have access to your
FICO scores but will be charged a fee by each credit agency
providing your report.
According to Fair Isaac, the credit scores of the American
public are divided as follows:
? 499 and below 1 percent
? 500-549 5 percent
? 550-599 7 percent
? 600-649 11 percent
? 650-699 16 percent
? 700-749 20 percent
? 749-799 29 percent
? 800 and above 11 percent
A score of 720 or higher will probably get you the best
interest rates on a home mortgage. Your credit card company looks
at your credit score to decide whether or not to raise your
credit limit or charge you a higher interest rate. The higher
your credit score, the better you look to lenders and the lower
your interest rates.
Several factors affect your credit score including your
payment history, the length of your credit history, any
outstanding debt, how long and how often you've had derogatory
credit information, such as bankruptcies, charge-offs, or
collections, and the amount of credit you are using compared to
the amount of credit available to you.
So how do you raise your credit score? Well, the first thing
to do is to order a copy of your credit report with the score
included from each of the three credit bureaus. Review your
reports and note any discrepancies. Correcting blatant errors is
the first step to repairing your credit, and changes can take up
to three months to be recorded.
Next, remember to pay your bills on time. It may seem like a
small thing at the time you're writing that monthly check, but an
accumulation of timely payments says a lot to a potential lender
looking for a reliable client. Prompt payments in the last few
months can actually make a big difference in your credit
score.
While collections, bankruptcies, and late payments have the
greatest negative effect on your credit score, your debt is a
factor as well. Keeping your account balances between 25% and 50%
of your available credit signals a responsible borrower. For
example, if you have a credit card with a $2000 limit, keep your
debt below $1000. For this reason, consolidating your credit card
debt can actually lower your credit score, as it raises the ratio
of your debt to your available credit. The best solution is to
simply pay off your existing cards as quickly as possible.
Excessive inquiries over a short period of time also damage
your score. When lenders, banks, or credit card companies check
your credit report, the inquiries are recorded. Several of these
"hard inquiries" in the same time period may signal to other
lenders that you are opening multiple accounts due to financial
difficulty.
If you discover that you have accounts on your report that you
didn't open, or your public records such as tax liens or
judgments that are not yours, you may be a victim of identity
fraud. It is up to you to deal with the damage that can happen to
your credit score because of this criminal activity. Being aware
is your first step, but when the items end up on your report, you
have no alternative but to clean it up. For more information on
dealing with credit damage, visit the Credit Damage website.
Overall, give yourself time to build a good credit score and
even more time to correct serious problems. The length of your
credit history is another determining factor in a good score.
Lenders want to know that you are able to maintain prompt
payments and good standing for a period of time. So check your
reports yearly, do your due diligence, and your score can
improve.
Cathy Taylor is a marketing consultant with over 25 years
experience. She specializes in internet marketing, strategy and
plan development, as well as management of communications and
public relations programs for small business sectors. She can be
reached at Creative Communications: creative-com@cox.net or by
visiting http://www.menopauseinfo.org or
http://www.internet-marketing-small-business.com
MORE RESOURCES:
Credit - Google News
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