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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