Tips to Improve Your Credit Score

Document Sample
Tips to Improve Your Credit Score Powered By Docstoc
					When we were in school, report cards and our GPA were important. As adults, it's our
credit score.

Most people associate their credit score with obtaining a mortgage. However, it is
applicable in many situations. As we begin considering our motivations for wealth, we
should avoid being careless with our spending, especially on credit.

A good credit score helps you avoid a security deposit when getting a cell phone or a
new utility account. Property managers run credit checks when you apply for an
apartment or office space. Employers may check credit during the hiring process.

What should my score be?

FICO scores start in the 300 range and go into the 800s. Ideally, we want to be a part
of the 800 club. The best interest rates are usually available if your score is above 700.

How does my credit score impact my loan?

Keeping tabs on your credit will more than pay off with lower interest rates and
smaller monthly payments. For example, the average interest rate today for a person
with a FICO score in the 700 range is 6.5%. The monthly payment on a $250,000
mortgage would be about $1580.

If a person's FICO score is in the 600 range, the interest rate would increase to about
8.9%, making the monthly payment jump to about $1994. The difference in the
payment is $414. That adds up to about $5,000 a year in extra expenses.

What can I do to fix my score?

The best thing to do is to pay your bills on time. Late payments greatly impact your
score. Negative information, such as late payments and collections, stays on your
report for seven years. Public records, such as judgments and liens, stay on for ten

Another important thing is keeping your balances low. Ideally, you should stay below
25% of the available credit. However, if you are under the 50% mark, you should be
OK. Don't max out those credit cards.

The length of your credit history is also important. Your score is based on the average
age of your open accounts. Don't open too many new accounts because it lowers the
average age of your accounts.

Don't close old accounts, even if you aren't using them. Not only will closing those
accounts reduce the length of your credit history, but it will also increase the amount
of available credit that you are actually using.

While some people place a lot of emphasis on inquiries, they really do not impact
your score much. I would recommend concentrating on the other issues I mentioned.

How do I fix this?

While there are many companies that will attempt to improve your credit score after
you pay them hundreds or thousands of dollars, there really are no quick fixes. The
best part is that you can do it yourself.