We all know that we’re more than our credit score, but what’s inside doesn’t really matter to lenders, landlords, and even some employers. Many facets of our lives are controlled by that finicky three-digit number, and your score determines your chances of being approved for credit, and the interest rate at which you’ll receive it. Here, a basic breakdown of credit worth, by the numbers:
- 750 and above will get you primo interest rates on loans; you’ll essentially get approved anywhere and everywhere.
- 710 through 750 will get quite a few competitive offers sent your way, though you won’t get as many as a person with a score of 750+.
- 650 up to 710: You’ll get approved, but you won’t get the good rates that your friends with higher scores will get.
- 580-650: Prepare yourself for stricter terms and higher interest rates.
- 580 and below: Basically, if you don’t want to go through a loanshark, forget it!
There are a few ways to enhance your score. Focus on paying bills on time, and using your credit line responsibly. Paying on schedule accounts for 65% of your score, and that will bring up your reputation with future lenders. Paying late will damage your report, but only for so long. Even a payment that’s two months late will begin to go away after you’ve started catching up. A 90-day late payment (which is almost as bad as a bankruptcy!) will take longer, but will disappear eventually. Having a recent payment record that’s sparkling clean will help, too.
Keep balances lower. Use less than 35% of your credit line, and lenders will look more favorably upon you. Ideally, you’d pay off your entire balance every month, but if that can’t happen, pay as much as possible.
Expand your credit history. Don’t close all your old accounts, because that will decrease your debt-to-credit ratio. Use these cards every few months or so, to make a minor purchase that can be paid off the same month. That will give the company something to tell the credit bureaus. Also, make sure your lenders are fairly and accurately reporting your credit limits, and if they aren’t, ask them to do so. If you think you can spend responsibly, ask your bank to increase your credit limit. The only drawback to this is: A request for an increase can bring about a fresh inquiry into your credit history- which can reduce your score by five points or possibly more. Building a credit history through a home equity loan isn’t a good idea either.
Pay off any no-down-payment loans first. Now would be the time for a home equity loan, because it counts against your score less than a revolving line of credit does. Be careful, though, because if you don’t pay a home loan, the lender can foreclose on your home! Take care of all accounts that have gone into collections; but paying them off won’t bring up your score as much as you might think. The real damage to your score comes when the debt is “charged off”. Attempt to negotiate with the collector, and have them mark the account as paid, or remove it from your report.
Don’t make repeated applications for credit. Multiple inquiries into your credit history can be just as bad as a “hard inquiry”, as far as your FICO score is concerned. If you’ve done all your loan shopping within 45 days, you should be OK, but some lenders operate under a two-week timeframe. Keep track of your report, and make sure all entries are accurate. One false entry can drop your score by fifty points, or even more. Review all three major reports, as they all contain different information.
Maintaining a good score doesn’t take as much effort as fixing a dented one. Keep paying your bills on schedule, spend responsibly, and don’t mess with a good thing! Tinkering with your report too much can bring your score down.
Being on someone else’s account as a joint holder or authorized user used to be an asset to your credit report, but no more. Credit companies no longer use this information due to widespread fraud. I guess you could say a few bad apples spoiled the whole barrel.
Improving (or maintaining) your score isn’t easy, but hopefully with the tips given here, it won’t be as difficult. Good luck, and responsible spending!
Your credit report is the basis for your financial standing. No matter how slick or smart you may be, no bank will touch anyone with a low credit score. It's their money, why would they want to take a bigger risk than they need to?
If you don't know where your credit report score is at, now's the time to take a peek. Don't get surprised with a low credit score when you go in to review your report with a potential lender or even an employer, find out for yourself within minutes.