January 18, 2011 in Business

Score c hasers

Polishing your credit rating can open financial doors
Eve Mitchell
Score range

Credit scores can range from 300 to 850.

760 or higher: Excellent. Your score is well above the average score of U.S. consumers and clearly demonstrates to lenders that you are an exceptional borrower.

725 to 759: Very good. Your score is above average and demonstrates to lenders that you are a very dependable borrower.

660 to 724: Good. Your score is near the average. Most lenders consider this a good score.

560 to 659: Not good. Your score is below the average. Some lenders will approve loans with this score.

Lower than 560: Bad. Your score is well below the average and demonstrates to lenders you are a very risky borrower.

Source: www.scoreinfo.org

Tips to boost your score

• Keep balances low on credit cards and other “revolving credit.” High outstanding debt can affect a credit score.

• Pay off debt rather than moving it around. The most effective way to improve your credit score in this area is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your score.

• Don’t close unused credit cards as a short-term strategy to raise your score.

• If you have been managing credit for a short time, don’t open a lot of new accounts too rapidly. New accounts will lower your average account age, which will have a larger effect on your score if you don’t have a lot of other credit information.

On the Web: Consumers who want a free estimate of their score can go to www.myfico.com/ficocreditscoreestimator. It won’t provide the exact FICO score but a range based on answers to questions such as when they last missed a payment or added a new credit card. To check for mistakes, go to www.annualcreditreport.com or call (877) 322-8228.

Source: www.myfico.com

Sherelle Villacorta had a good credit score, but like many people, she wanted a higher score.

Her strategy was to pay down her debt and keep current on her bills, but increase the amount of available credit. It worked. Within seven months, her credit score went from 697 to 758.

“I just recently graduated from college, so because of that I was relatively new to credit scores and having a lot of credit,” the 22-year-old University of California-Berkeley graduate said. “If you have credit available but you don’t use a lot of it, you’ll have a higher credit score. I started paying down my debt and making sure I was spending only what I could afford.”

Credit scores have a huge effect on your financial life. They can determine the interest rate you will pay on a mortgage or a car loan. For that matter, they make the difference in qualifying for a loan or being approved for a credit card.

After checking her credit score on CreditKarma.com in June before renting an apartment in Emeryville, Calif., Villacorta used some credit score tips she found on the website.

She added two retail credit cards at stores where she liked to shop to the two bank cards she already had, increasing and diversifying her credit limit while keeping her balances low.

“There is a difference between having a lot of credit versus having a lot of credit and using it and being in debt. People often confuse the two. They think, ‘If I have five credit cards, it means I’m probably carrying a lot of debt,’ but the reality is if you have five credit cards and use them very sparingly, that is actually a great credit attribute,” said Ken Lin, chief executive officer of San Francisco-based CreditKarma.com, which provides visitors with free access to credit scores.

A FICO score is the credit score used by most lenders. The higher the score, the lower a consumer’s future credit risk.

Payment history – the biggest factor in setting FICO scores – accounts for 35 percent of the calculation, followed by amounts owed at 30 percent. So it’s not surprising that the key recommendation to raising credit scores is paying off existing debt and keeping current on bills.

How much of a difference does a great credit score make compared with a poor one? Consider this: A consumer with a score of 760 would have a monthly payment of $750 on a $25,000 auto loan over a three-year period based on a 4.9 percent interest rate. Someone with a poor credit score of 600 would have a monthly payment of about $900 based on an interest rate of 17.7 percent, according to myfico.com.

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