Credit Scores Are Important by ps94506

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									Credit Scores Are Important
More than Ever!                                How is a credit score determined?           •	 Number	of	recent	credit	inquiries
                                               	 A	FICO	score	takes	into	account	          Types of Credit Used – 10%
	 The	lending	market	has	tightened	            information	from	all	of	the	following	      	 The	score	takes	into	account	your	
in	recent	months,	making	it	more	diffi-        categories.	The	relative	importance	of	     mix	of	credit	cards,	retail	accounts,	
cult	for	borrowers	to	obtain	a	mortgage	       any	one	factor	depends	on	the	overall	      installment	loans,	finance	company	
loan.	Therefore,	it	is	even	more	impor-        information	in	your	credit	report.	         accounts	and	mortgage	loans.	Although	
tant	that	your	credit	scored	be	as	strong	
                                               Payment History – 35%                       credit	mix	is	not	a	large	component	of	
as	possible.	
                                               	 A	consistent	record	of	making	your	       your	score,	it	becomes	more	important	
	 Read	on	to	find	out	more	about	what	
                                               payments	on	time	helps	your	score.	Late	    if	you	do	not	have	a	lot	of	other	infor-
goes	into	determining	your	credit	score	
                                               payments	will	hurt	your	credit	score.	      mation	on	which	to	base	a	score.	
and	most	importantly,	steps	you	can	
                                               Payment	history	takes	the	following	into	
take	to	improve	your	score.	                                                               Boosting Your Credit Score
                                               account:
                                                                                           	 Since	your	credit	score	is	an	indi-
What is a credit score?                        •	 Credit	account	payment	information
                                                                                           cation	of	your	credit	risk	based	on	a	
	 Your	credit	score	is	a	number	attached	      •	 Presence	of	adverse	public	records	
                                                                                           snapshot	of	your	credit	history,	your	
to	your	credit	report	that	indicates	how	         –	bankruptcy,	judgments,	collections,	
                                                                                           credit	score	is	not	a	static	number	–	it	is	
likely	it	is	that	you	will	repay	future	          liens
                                                                                           dynamic	and	changes	as	your	informa-
debts.	The	most	common	credit	score	           •	 Severity	of	delinquencies	–	length	of	
                                                                                           tion	changes	at	the	credit	reporting	
used	by	lenders	is	the	FICO	score,	which	         time	past	due
                                                                                           agency.	If	you	have	had	poor	credit	in	
ranges	from	300	–	850.	FICO	is	an	             •	 Number	of	past	due	items
                                                                                           the	past,	you	can	improve	your	score	
acronym	for	Fair	Isaac	Corporation	and	        •	 Number	of	accounts	paid	on	time
                                                                                           by	managing	your	credit	responsibly.	
refers	to	their	proprietary	credit	scoring	
                                               Amounts Owed – 30%                          Recent	good	credit	management	has	a	
system	which	is	calculated	using	mathe-
                                               	 This	factor	takes	into	account	what	      more	significant	bearing	on	your	credit	
matical	formulae.	A	FICO	or	credit	score	
                                               you	owe	on	all	your	accounts,	the	num-      score	than	the	negative	impact	of	past	
is	not	an	indicator	of	wealth,	but	rather	a	
                                               ber	of	accounts	with	balances	and	how	      credit	problems,	since	their	impact	will		
tool	used	by	banks	and	lending	institu-
                                               much	of	your	available	credit	you	have	     diminish	as	time	passes.	
tions	to	determine	credit	worthiness.	The	
                                               used.	The	more	you	owe	compared	to	         	 Establishing	or	re-establishing	a	
score	reflects	the	likelihood	that	you	will	
                                               your	credit	limit,	the	lower	your	score	    good	track	record	of	making	payments	
repay	your	debt,	based	on	your	credit	
                                               will	be.                                    on	time	will	raise	your	credit	score.	The	
history	and	current	credit	status.
	 There	are	three	credit	reporting	agen-
                                               Length of Credit History – 15%              following	are	some	dos	and	don’ts	to	
                                               	 A	longer	credit	history	will	increase	    improve	your	credit	score:
cies.	Your	score	will	vary	somewhat	
                                               your	credit	score.	Therefore,	it	is	not	
among	these	agencies.	Typically,	when	                                                     Do’s and Don’ts
                                               generally	a	good	idea	to	close	accounts	
applying	for	a	loan,	a	lender	will	pull	                                                   •	 Do	pay	all	your	bills	on	time	each	
                                               you	no	longer	use;	by	doing	so,	you	
reports	from	all	three	bureaus,	called	                                                       month	–	late	payments	and	col-
                                               may	be	eliminating	a	good	percentage	
a	tri-merged	report	and	will	use	your	                                                        lections	have	a	significant	negative	
                                               of	your	credit	history.	
middle	score	(not	the	average	score).                                                         impact	on	your	credit	score.	Pay	at	
                                               New Credit – Recent Inquires – 10%             least	the	minimum	payment	by	the	
Why is a credit score important?               	 Several	hard	inquiries	from	a	lender	        due	date	on	all	your	credit	cards.
	 Your	credit	score	plays	an	important	
                                               or	business	will	decrease	your	credit	      •	 Do	pay	down	debt.
role	in	getting	a	good	loan.	If	you	have	
                                               score.	Opening	new	accounts	can	lower	      •	 Do	check	your	credit	report	periodi-
a	good	credit	score,	you	have	more	loan	
                                               your	score.	Factors	that	are	considered	       cally	to	make	sure	there	are	no	errors	
options	available	to	you	and	you	will	
                                               include:                                       or	that	you	are	not	a	victim	of	iden-
generally	be	able	to	obtain	a	lower	inter-
                                               •	 Number	of	recently-opened	accounts          tify	theft.	It	is	recommended	that	you	
est	rate,	saving	you	potentially	thou-
                                               •	 Proportion	of	accounts	that	have	           review	your	credit	report	from	each	
sands	of	dollars	over	the	life	of	the	loan.	
                                                  been	recently	opened	                       reporting	agency	at	least	once	a	year.
•	 Do	have	credit	cards,	but	manage	          	 The	site	also	provides	information	on	         to	ignore	their	calls	and	stop	paying	
   them	responsibly.	In	general,	having	      how	to	obtain	your	free	credit	report	by	        your	bills		
   credit	cards	and	installment	loans,	       phone	or	through	the	mail.	The	phone	         •	 Companies	that	recommend	that	you	
   and	making	timely	payments	on	             number	is	877-322-8228.                          create	a	new	identity
   them,	will	raise	your	credit	score.        	 If	you	find	inaccuracies	on	your	           	 Consumer	Credit	Counseling	Service	
•	 Don’t	max	out	your	credit	cards	–	if	      credit	report,	take	action	to	correct	        is	a	non-profit	organization	that	assists	
   you	are	going	to	carry	a	balance	on	       them	right	away.	                             consumers	in	dealing	with	their	credit	
   your	credit	cards,	make	sure	it	is	a	      	 Contact	information	for	the	three	          problems.	Consumer	Credit	Counsel-
   low	percentage	of	the	credit	limit	on	     credit	reporting	agencies:                    ing	Service	has	offices	throughout	the	
   the	card.                                  •	 Equifax	      800-685-1111                 United	States	and	can	be	located	by	
•	 Don’t	cancel	your	credit	cards	–	un-       	 	              www.equifax.com              calling	800-388-CCCS (2227).
   less	you	are	being	charged	an	annual	      •	 Experian	     866-200-6020
                                                                                            What About Inquires?
   fee.	Closing	an	account	will	have	a	       	 	              www.experian.com
                                                                                            	 There	is	an	inquiry	section	on	your	
   negative	impact	on	your	score.	            •	 Transunion	 800-888-4213	
                                                                                            credit	report	that	contains	a	list	of	who	
•	 Don’t	apply	for	and	open	new	credit	          	             www.transunion.com
                                                                                            has	accessed	your	credit	report	in	the	
   accounts	frequently.	(Don’t	open	up	       	 For	a	sample	dispute	letter	written	by	
                                                                                            previous	two	years.	This	list	will	consist	
   an	account	with	each	retailer	that	        the	Federal	Trade	Commission,	visit	our	
                                                                                            of	hard	inquiries	and	soft	inquiries.	
   promises	to	give	you	10-15%	off	           website	at	www.coastalhousing.org.		
                                                                                            When	creditors	and	lenders	review	your	
   your	purchases	the	day	you	open	an	        Click	on	Home	Buying	Education	
                                                                                            credit	data	for	the	purpose	of	an	appli-
   account	with	them.	That	might	be	a	        –	Credit	Repair.
                                                                                            cation,	a	hard	inquiry	is	listed	on	your	
   good	strategy	when	you	are	pur-
                                              Avoid the Scams                               credit	report.	Too	many	hard	inquiries	
   chasing	a	big	ticket	item,	such	as	an	
                                              	 If	you	are	having	trouble	making	           can	harm	your	credit	score.	Soft	inqui-
   appliance.	However,	be	careful	how	
                                              your	credit	card	payments,	do	contact	        ries	are	when	you	check	your	own	credit	
   frequently	you	are	opening	up	new	
                                              your	creditors	or	a	legitimate	credit	        or	when	a	company	checks	your	credit	
   credit	accounts).
                                              counselor.	This	won’t	improve	your	           history	in	advance	of	sending	you	a	pre-
Checking Your Credit                          credit	score	immediately,	but	if	you	can	     approved	credit	card.	A	soft	inquiry	will	
	 You	are	entitled	to	receive	a	free	copy	    begin	to	manage	your	credit	and	pay	on	       not	impact	your	credit	score.
of	your	credit	report	once	a	year	from	       time,	your	score	will	improve	over	time.	     	 Any	time	you	authorize	a	creditor	to	
each	of	the	three	consumer	credit	report-     	 Avoid	credit	management	companies	          access	your	credit	report,	it	is	consid-
ing	companies:	Equifax,	Experian	and	         that	market	to	you	with	the	promise	          ered	a	hard	inquiry	and	will	have	a	
Transunion.	(There	is	a	charge	if	you	        that	they	will	clean	up	your	credit	–	for	    negative	impact	on	your	score.	Although	
want	to	receive	your	credit	score.)		An-      a	fee.	Generally,	your	credit	is	no	better	   one	inquiry	will	likely	result	in	a	5	point	
nualCreditReport.com	is	the	official	site	    due	to	their	services	–	and	sometimes,	       or	less	decrease,	multiple	inquiries	will	
to	help	consumers	obtain	their	free	credit	   it	can	be	worse.	These	companies	can’t	       decrease	your	score	exponentially.	
report.	The	site	cautions	you	to	be	aware	    do	anything	to	improve	your	credit	           	 If	you	are	shopping	for	a	mortgage	
of	how	you	arrive	at	the	site.	To	ensure	     that	you	can’t	do	for	yourself	for	free.	     loan,	you	can	have	a	number	of	lenders	
that	you	are	visiting	the	legitimate	site,	   Beware	of	the	following	–	they	are	indi-      run	your	credit	and	it	will	only	count	
type	https://www.annualcreditreport.com		     cations	of	a	scam:                            as	one	inquiry,	if	it	is	done	within	a	
directly	into	the	address	bar	on	your	        •	 Companies	that	want	you	to	pay	for	        thirty	day	period.	The	same	is	true	of	
browser.	You	will	never	receive	an	email	         services	before	they	do	any	work          shopping	for	a	car	loan	–	do	this	within	
directly	from	the	Annual	Credit	Report	       •	 Companies	that	tell	you	not	to	talk	       a	thirty-day	window	and	it	will	count	
Request	Service.                                  to	the	credit	card	companies	–	in	fact	   as	one	inquiry.

								
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