Credit scores are more important today than ever. This score plays a large part in what interest rate you’ll pay on loans, and whether you’ll even get the loan, and it also effects your insurance rates among other things. A credit score is basically a summary of your credit report and a numerical measurement that reflects your management of credit.
Credit scores range from 300-900. A score above 620 is good, above 700 is very good, and above 750 is great. If your score is below 600 you’ll be paying higher interest for your loans. If your credit is low, there are ways to raise it.
There are three basic principles to follow to raise your credit score.
First, pay your bills on time (or early if possible). When lenders look at your credit they want to see that you pay your bills as agreed. Having on time payments is one of the biggest factors on your score. Occasionally being late should not affect your ability to get new credit, as long as your late payments aren’t too close together and too frequent. If you have a pattern of paying late you’ll be considered a higher risk.
Second, don’t declare bankruptcy, have an automobile repossessed, or have your home foreclosed on. These are the BIG ones. One of these and your credit will go right down the drain so be careful to plan your money.
Third, keep control of how much money you owe, especially on credit cards. It’s good to have credit cards to show a track record, but your score not only looks at if you’re paying your payments on those cards, but if you are “maxed out” on your cards. Lenders like to see that you haven’t spent every dime you don’t have. Plus, if you’re maxed out on cards the chance you’ll pay on time if an emergency comes up is not good. If you have three credit cards and each has a spending limit of $3000 and you only owe $300 on each card, that shows the bank (and is reflected in your credit score) that you can manage your money and you have a safety net if you need it.
It may not be as bad as you think, at least for buying a home. I’ve had clients who had just gone through bankruptcy and we still got them into a house, they just paid higher interest. Plus, it’s actually easier to buy a house than a car (you can’t drive away with a house). Owning a home and paying your mortgage on time is a great way to raise your score.
Follow these guidelines and your score will increase. Make sure you keep your credit report accurate. Periodically check your score with the three credit bureaus and be cautious before closing an existing credit card account because that can hurt your score. If you have an account for a long time and it has no balance that is good. Keep it open.
To get a copy of your credit report, contact the credit bureaus:
Equifax- 800-685-1111 – www.equifax.com
Experian- 800-682-7654- www.experian.com
Trans Union- 800-916-8800- www.tuc.com