What all the credit score fuss is about
Your credit score tells lenders how risky you are as a borrower. Check it annually for free, find and fix errors and get to work now to raise it.
The ads seem to be everywhere on TV. Somebody is offering to help you find your credit score. If you’ve never bothered to examine your score, you may be wondering what all the fuss is about. The truth of the matter is this: You should get your credit report, take a close look at it, repair it if you find errors and work at boosting your credit score if it’s low. Obtaining your credit report is one of the more important steps you can take to improve your personal financial situation and it’s absolutely free.
Video: How Does a Credit Bureau Work?
From valley low to mountain high
This three-digit number – from a Death Valley low of 300 points to a Mount Everest high of 850 – is used by creditors to determine how much of a risk they’d be taking in lending you money. It can be used also by prospective employers in deciding whether you’re trustworthy enough to hire and by landlords in letting you rent an apartment.
The top 20% of credit profiles receive a score over 780; the lowest 20%, under 620. Any score above the average mid-700s means you’re likely to be able to obtain a car loan, a home mortgage or other credit at a favorable interest rate. A below-average score generally means you’re going to have trouble. Don’t despair: You can raise a low score.
Video: Repair Your Bad Credit
Factors that affect your score
Factors that affect your score and the importance placed on them differ from bureau to bureau. But all three utilize answers to the following questions.
- Have you paid your bills on time?
- How much do you owe compared with your credit limit?
- How long is your credit history? (The longer you have been using a credit card, for example, the more reliable you can appear to be.)
- Have you applied for new credit? (Trying to open too many new accounts raises suspicion.)
- Do you use many different kinds of credit? (A mix of credit cards and installment loans helps.)
Ways to boost a low score
Repairing your credit score can help you speed up credit approvals and lower your interest rates. This won’t happen overnight, but it will prove to be well worth the time and effort. Get started now. Here’s how to do it:
- Start paying your bills on time.
- Keep credit card balances low.
- Pay off debt instead of moving it around among several credit cards.
- Apply for and open new lines of credit so as to have a variety of them, but only when you really need them.
- Check your credit report regularly for accuracy. A simple letter to the credit bureaus disputing an error can go a long way toward fixing it.
- If you have let things slide to the point that a collection agency has become involved, settle up immediately.
- Don’t let friends and family members use your credit card unless you’re willing to assume responsibility for the charges they make and the fees they rack up.
- Consider a debt consolidation program. When you consolidate debts, you don't have to deal with lots of creditors at many different interest rates; instead, you have one creditor and a single, potentially low, rate. Some people feel that one bill each month is easier to handle than many.
How to establish a credit history
If you have no credit and therefore can’t qualify for a credit card, you can, with permission, get yourself listed as an authorized user of another person’s card. Use the card with care, and within a year you’ll have a favorable credit history that should enable you to open your own account. Keep in mind that the person who agrees to let you be an authorized user must maintain a good credit score. If the primary card holder allows his or her score to fall, you could see your credit score fall as well.