There
are three simple
steps you can take
to improve your
credit score.
We think they're
well worth knowing
and trying to follow
because your credit
score is one of the
most important
numbers you'll carry
through life, like
it or not.
No one asks if you
want one. No one
tells you when you
get one. No one
tells you what it is
unless you ask --
and pay to find out.
Yet that score will
play a big role in
whether your
application for a
credit card, auto
loan or mortgage is
approved and what
your monthly
payments will be.
The higher your
score, the lower
your interest rate
and payments.
Credit scores are
used for lots of
other things, too,
like setting car
insurance premiums.
The higher your
score, the lower
your premiums.
So we're not talking
peanuts here. The
difference between a
high and low score
can save you
hundreds of dollars
a month.
Your credit score is
based on what banks,
stores, utility
companies and other
creditors have told
the three major
credit rating
agencies about how
much you owe and how
diligently you've
paid it back.
There are no
shortcuts to
improving your
score.
Don't listen to
anyone who wants to
"fix" your
bad credit score for
a fee. If it was
that easy, don't you
think the banks or
credit rating
agencies would be
lining up to take
your money? Some guy
with an 800-line or
an office between
the check cashing
store and carry-out
pizza joint at your
local strip mall
can't help.
Here's what you've
got to do:
Pay all of your
bills on time. We
know you have a lot
going on in your
life and bills get
misplaced and
writing checks is a
pain. But you need a
system to get every
bill to every
creditor, before the
due date on your
statement. Late
payments, even to
the gas or electric
company, will be
reported to the
credit agencies and
result in a lower
credit score.
Pay off debts,
especially balances
you've been carrying
on credit or store
charge cards. And
that means really
paying them off.
Just transferring an
outstanding balance
from credit card to
another using one of
those nifty
promotions that came
in the mail won't
help.
Don't apply for
credit on a whim.
Your mailbox may be
full of credit card
applications
offering low, low
rates for a few
months. And cashiers
often push you to
get a store charge
card when you check
out, tempting you
with a discount on
your purchase if
you'll just fill out
their form. But if
banks and stores are
constantly asking
the credit agencies
for your credit
history, your score
suffers.
Here's why.
Your credit score is
computed using a
formula created by
Fair, Isaac and Co.,
a firm started by
Bill Fair and Earl
Isaac. Nearly 50
years ago, they
figured out that if
they could collect
enough information
about a person's
credit history, they
could calculate how
likely that person
would be to miss a
payment or default
on a loan.
That risk factor is
represented by your
credit score, or
your FICO score as
it's commonly called
in the credit biz.
The higher the
score, the lower the
risk. While it is
theoretically
possible to earn a
"perfect"
900, a score in the
700s is considered
good or excellent.
If your FICO stands
in the low-600s,
however, you have
trouble.
Your score is
calculated using 22
different variables
from your credit
history.
About 35% of your
score is based on
how promptly you pay
your bills. The
second
most-important
element is the
amount that you owe.
That's 30%. The
number of years you
have used credit
counts for 15%. The
types of credit you
use -- credit cards,
store charge cards,
installment loans,
mortgages, and so on
-- is worth 10%.
That looks at how
many accounts you
have opened recently
and how many times
companies have
accessed your credit
history.
Take special notice
of one surprising
thing that is not
used to calculate
your FICO score how
much money you make.
It doesn't matter
whether you earn
$10,000 or $10
million a year,
income is not a
factor.
There is a FICO
score on everyone
who has a credit
file with any of the
three national
credit agencies,
which accounts for
75% percent of U.S.
consumers over the
age 17 -- about 165
million people.
You're almost
certainly one of
them if you've ever
had a bank card,
store charge card,
auto loan, or any
other kind of debt.
A new federal rule
requires the three
big credit reporting
agencies Experian,
TransUnion and
Equifax -- to
provide a free copy
of your credit
history every year.
Just go to
www.AnnualCreditReport.com.
If there are items
on your credit
report that are
wrong or that you
think are unfairly
portrayed, you can
file a formal appeal
with the
credit-reporting
agency. Each agency
has an appeals
process that you can
find by contacting
them at the Web
sites or phone
numbers listed
below.
Your credit report
does not include
your FICO score. For
that you have to
either call one of
the agencies or go
to one of their Web
sites.
Here's how to
contact the credit
reporting agencies:
Equifax, by phone at
(800) 685-1111, or
online at
www.equifax.com
Experian, (888)
397-3742, or
www.experian.com
TransUnion, (800)
888-4213, or
www.transunion.com
The
purpose of this
newsletter is to
stimulate thought
for my clients and
those professionals
with whom I
network. If
you are a real
estate, estate
planning, taxation,
financial planning
or insurance
professional
receiving this
newsletter, please
call my office and
introduce yourself
to me. I'm
always seeking to
grow my referral
network, and to
expose more service
professionals to my
client base. I
specialize in
helping those
individuals looking
to buy, sell or
refinance real
property in the
Pacific Northwest
Area.
