Credit Score Is Important for Your Financial State! You sit down to look at your credit report for the first time. If you’re scores are above 720, congratulations! You have excellent credit; stop worrying. If you’re scores are not above 700, no problem—let’s get to work. Take solace in the fact that the national average score is around 676 according to the Gallup Organization. If you’re scores are below 400, 500, or 600, there’s definitely room for improvement and only one way to go—up! Get copies of your credit report — then make sure the information is correct. Go to the Annual Credit Report web site. This is the only authorized online source for a free credit report. Under federal law, you can get a free report from each of the three national credit reporting companies every 12 months. You can also call 877-322-8228 or complete the Annual Credit Report Request Form at the Federal Trade Commission (FTC) web site and mail it to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. If the numbers I’ve mentioned don’t make any sense to you or you have no idea what they mean, don’t fret—I’ll explain. Credit scores range from 350 to 850. All three of the credit bureaus—Equifax, Experian, and Transunion—offer FICO credit scores using a complex mathematical formula developed by Fair, Isaac and Company, but they each give the scores a different name: At Equifax, the FICO is known as the Beacon credit score; at TransUnion, it’s called Empirica; and at Experian, it’s called the Experian/Fair, Isaac Risk Model. Your credit score is usually based on the answers to these questions: Do you pay your bills on time? The answer to this question is very important. If you have paid bills late, have had an account referred to a collection agency, or have ever declared bankruptcy, this history will show up in your credit report. When a lender makes an inquiry about your credit, your score could drop up to five points. Some borrowers think that if they shop around by going to a number of different lenders that each time a lender does an inquiry it will generate another reduction in the credit score. This isn’t true. For credit score purposes, multiple inquiries for a loan are treated as a single inquiry, as long as they all come within a 45 day period. So it is best to do your rate shopping within this 45 day window. What is your outstanding debt? Many scoring models compare the amount of debt you have and your credit limits. If the amount you owe is close to your credit limit, it is likely to have a negative effect on your score. How long is your credit history? A short credit history may have a negative effect on your score, but a short history can be offset by other factors, such as timely payments and low balances. Your credit score is an integral part of your financial life. It is important that you understand what it's all about. Lenders, landlords, insurers, utility
companies and even employers look at your credit score. It is derived from what's in your credit reports, and it ranges between 300 and 850. Yet, according to a survey that was recently conducted, nearly half of all Americans don't know how these scores are derived or even what factors are used to come up with them. With so much depending on the credit score, it’s important to understand what it is all about and what the things that affect it are. Unfortunately, people commonly have a lot of misinformation and misunderstandings about their credit score. Here are five of the most common credit score myths and along with it the true facts. For example, if your credit score is 580 you are probably going to pay nearly three percentage points more in mortgage interest than someone who had a score of 720. Or another way of looking at it, if you had a $150,000 30- year fixed-rate mortgage and your credit score was good enough to qualify for the best rate, your monthly payments would be about $890. This is according to Fair Isaac, the company that created the FICO score and who the rate is named after (Fair Isaac Corporation). If your credit is poor, however, it is very likely that you would have to pay more than $1,200 a month for that same loan. Pay your bills on time. The three major credit bureaus - Equifax, TransUnion and Experian -- give the score a different name. Equifax calls their score the "Beacon" credit score, Transunion calls it "Empirica" and Experian gives it the name “Experian/Fair Isaac Risk Model." They all use different names for the credit score, but they all use the same formula to come up with it. The reason that the credit score you receive from each bureau is different is because the information in your file that they base the score on is different. For example, the records that one bureau is using may go back a longer period of time, or a previous lender may have shared its information with only one of the bureaus and not the other two. Usually the scores are not too far from each other. Unless there is a big difference between what each bureau says is your credit score, many lenders will just use the one in the middle for the purpose of analysing your application. So, for this reason alone it is a good idea to correct any errors that exist in each of the three major credit bureaus. Learn the legal steps you must take to improve your credit report. Paying off your debts is all you need to do to immediately repair your credit score. Your credit score is mostly determined by your past performance more than your current amount of debt. It will definitely be very helpful to pay off your credit cards and settle any outstanding loans, but if yours is a history of late or missed payments, it won’t remove the damage overnight. It takes time to repair your credit score. So definitely pay down your debts. But it is equally important to consistently get in the habit of paying your bills on time.
The Federal Trade Commission’s “Building a Better Credit Report” has information on correcting errors in your report, tips on dealing with debt and avoiding scams—and more. One of the most important things you can do to improve your credit score is pay your bills by the due date. You can set up automatic payments from your bank account to help you pay on time, but be sure you have enough money in your account to avoid overdraft fees. If the credit bureaus have accurate information, there’s nothing that can be done to quickly improve your score if in fact you have a history of not handling your debts well. The only way to have an effect on your credit score is to show that you can manage your debts in the future. Also, if there are errors in your file, you can contact the bureau yourself. You don’t need to pay someone else to do it. Each of the major credit bureaus has a website which clearly explains what you need to do to correct an error. So, the best ways to improve your credit score are: pay down the debt, pay your bills on time, correct existing errors on your credit reports in each of the three bureaus and apply for credit infrequently. Have you applied for new credit recently? If you have applied for too many new accounts recently that may negatively affect your score. However, if you request a copy of your own credit report, or creditors are monitoring your account or looking at credit reports to make pre-screened credit offers, these inquiries about your credit history are not counted as applications for credit. How many and what types of credit accounts do you have? Many creditscoring models consider the number and type of credit accounts you have. A mix of instalment loans and credit cards may improve your score. However, too many finance company accounts or credit cards might hurt your score. To learn more, see the Federal Trade Commission’s publication on credit scoring at their web site. If you’re credit scores are above 720 you have excellent credit and will able to get the best interest rates available. As your credit scores drop, the interest rate you’ll receive for a home loan will rise: this is known as tiered pricing. The more of a risk the lender takes on you, the higher your interest rate will be. In addition, all lenders have their own break points between tiers. What this means is that one lender may raise the interest rate if a score drops below 700, while another lender won’t give a higher rate until the score drops below 690. In summation, you should do everything in your power to maintain good credit scores, and be sure to shop around and do your homework when looking for a home loan because all lenders are not created equal. I think you’ve already gleaned the moral of the article but just in case you haven’t, here it is: Good credit scores save lots and lots of money, and be sure to choose a lender wisely to get the best rate for your scores.
It's not closing accounts that affect your credit score, it's opening them. Closing accounts can never help your credit score, and may actually hurt it. Yes, having too many open accounts does hurt your score. But once the accounts have been opened, the damage has already been done. Shutting the account doesnâ€™t repair it and it may actually make things worse. The credit score is affected by the difference between the credit that is available and the credit that is being used. Shutting down accounts reduces the amount of total credit available and when compared with how much credit you can use your actual credit balances are made to seem larger. This hurts your credit score. The credit score also looks at the length of your credit history. Shutting older accounts removes old history and can make your credit history look younger than it actually is. This also can hurt your score. You generally shouldn't close accounts unless a lender specifically asks you to do so as a condition for them giving you a loan. Instead, the best thing you can do is just pay down your existing credit card debt. That's something that definitely would improve your credit score.