Your Credit Score
The Number
Your credit score, often called a FICO score, is a number that can range from a low of 300 to a high of 850. The median credit score in the U.S. is approximately 723. Each of the three major credit bureaus (Equifax, Experian, and TransUnion) creates its own credit score for every consumer.
How Your Score is Calculated
The Number 1 thing you can do to establish and maintain a high credit score is to pay your bills on time, especially your mortgage payment. When applying for a mortgage this is especially true, the main concern of mortgage lenders is whether or not you will make your mortgage payments in a timely matter, so they assign the highest percentage of your credit score (35 percent) to your history of on-time bill payment.
The Break Down
We established above 35% of your history is on-time bill payment, but here is how the rest breaks down. Your utilization ratio, or how much credit you use, accounts for 30% of your credit score. The length of your credit history accounts for 15% of your credit score. The number of recent credit inquiries accounts for the next 10% of your score - so don't get your credit checked by everyone in town. Your debt management history accounts for the last 10% of your score, this allows lenders to see if you have experience making timely payments on different kinds of loans.
Improving Your Score
The higher your credit score the lower your interest rates. Here are four tips for building and maintaining a high credit score.
- Always pay your bills on time. Late bill payments will especially hurt your potential mortgage rate and insurance premiums.
- Don't exceed 50 percent of your credit limit on any one credit card.
- Don't cancel any credit cards before you apply for a loan, even if you never use these cards. This will usually hurt rather than help your score.
- Don't apply for any new cards before applying for a loan, recent new credit inquiries will hurt your score.
Get your Free Credit Report
The three credit reporting companies have set up a central Web site, toll-free phone number, and mailing address through which you can order your annual free report. Visit www.annualcreditreport.com, call 1-877-322-8228 or write to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You must mail an Annual Credit Report Request form to this address, which you can obtain at www.ftc.gov/credit.
You can order all three reports at the same time or order them separately. The best strategy is to order one report every four months - that way, you can check your credit three times a year, instead of just once a year. When you receive the reports, review them carefully to make sure they are accurate and include only those activities you've authorized.
|
