Improving Your Credit Score
Submitted by Tom Peterson
You may be out of school, but that doesn't mean you're
free from report cards. In fact, if you want to buy
a house, a car or any other big-ticket item, a lender
will look up your "grade" as soon as you come knocking.
That grade is your credit score.
speaking, a credit score measures the likelihood you'll
repay what you owe, and it is based on information in
your credit report.
The rewards of raising your score speak directly to
your wallet: You'll qualify for more loans and be offered
better interest rates.
are many varieties of credit scores available to lenders.
But the most widely used for large loans are FICO scores,
which are based on a scoring system developed by Fair,
Isaac & Co., and which are provided to lenders by the
three national credit bureaus - Equifax, Experian and
may now get their FICO score or a comparable version
of it from each of the bureaus. It pays to review these
scores at least three to six months before shopping
for a loan so you'll have time to improve your standing
before approaching a lender.
Following are five things you can do to boost your creditworthiness,
plus more information on obtaining your personal score.
Steps to Better Credit
blatant mistakes. Your
credit score is only as good as what shows up in your
credit report. Review your reports from all three credit
bureaus for accuracy once a year as well as several
months before applying for a loan. Changing a mistake
on your report - such as a payment that is wrongly labeled
as late -- can take 30 days to three months, sometimes
your bills on time. This is always a good practice,
and it's especially critical that you make prompt payments
close to the time you need a loan. That's because a
late or missed payment in the last few months is likely
to lower your score much more than an isolated late
payment five years ago.
your credit card balances. A heavily weighted factor
in your FICO score is how much money you owe on your
credit cards relative to your total credit limit. Generally,
it's good to keep your balances at or below 25 percent
of your credit card limit, said Jeanne Kelly, founder
of The Kelly Group in Brookfield, Conn., which helps
clients improve their credit scores.
off debt rather than moving it around. Since the
ratio of your credit card balance to your credit limit
is key, closing out an account and transferring the
balance simply means you increase that ratio, which
is likely to lower your score. In other words, say you
owe a total of $2,000 on four credit cards, each of
which has a $2,000 limit. Your total credit limit is
$8,000, of which your total balance ($2,000) accounts
for 25 percent. If you transfer all your balances to
two cards and cancel the other two, your total credit
limit is reduced to $4,000, and your $2,000 balance
now accounts for 50 percent of that limit.
close unused credit card accounts near loan time. If you have several credit card accounts but are only
using a few of them, you'll only raise your balance-to-limit
ratio if you close the unused ones. You also shouldn't
open new accounts when applying for a loan if possible.
If you have a short credit history or very few accounts,
opening a new credit line may lower your score since
you don't have a proven track record, said Jan Davis,
an executive vice president at TransUnion. What's more,
a new account will lower the average age of your accounts,
another factor in your FICO score.
Can I Get My Score?
find out specifically what you must do to raise your
score, you can order your score report from all three
national credit bureaus. In addition to your score,
you'll get your credit report, an indication of how
your score ranks nationally and an explanation of how
you can boost your standing.
are two reasons to get your score from all three bureaus:
First, each bureau may have slightly different information
about you depending on which companies have reported
to them on your accounts -- reporting is not mandatory
and many companies will report more regularly to the
bureau based in their region. Second, mortgage lenders
often look at all three of the bureaus' FICO scores
and take the middle score - not the average -- to assess
your eligibility, said Michael Daversa of Atlantic National
Mortgage in Westport, Conn. So it's in your interest
to know what that middle score is and make it the best
it can be.
only Equifax offers consumers their actual FICO score.
It can be purchased online for $12.95 at Equifax or myFICO.com.
TransUnion and Experian sell their own score brands,
but spokesmen for the two bureaus say their scores are
comparable to FICO scores in that any advice they give
you to improve your score will apply to the FICO score
Equifax, the Experian score can only be purchased online for $12.95. The TransUnion
score (included whenever you buy your TransUnion
credit report, which will cost up to $9.00 depending
where you live) may be purchased online, by mail, or,
in some cases, by phone.
you were denied credit, you're entitled to a free credit
report from the bureau supplying the information that
was the basis for denial. Some states also entitle residents
to a free credit report at least once a year. There
is, however, no requirement that credit scores be offered
free, although with TransUnion your score is automatically
included in your report, whether you get it free or
Call me to discuss you personal position in detail and
in confindence. I can help repair your credit, sell
your home, buy your next home and finance it as well.
Peterson Loan Officer and Realtor
Metro Lending Services