Personal finance magazines and TV shows often tell you to raise your credit score and that you need a good credit score to get a mortgage loan with a good (low) interest rate. You may even know what your credit score is. But do you know what it really means? Credit scores tell lenders and businesses how much of a risk you pose when they lend or do business with you. The higher your credit score the less risky a borrower you seem. The more likely you are to pay back what you borrowed. Unless your family has extraordinary wealth, you’ll likely need to get some loans to get ahead. The lower your credit score the higher the interest rates you’ll face.
With that in mind, here are some tips on how to raise your score:
- pay your bills on time every month (make the due date)
- don’t max out your credit cards (or even come close)
- pay off your debt rather than move it to other credit cards or loans
- check your credit reports annually for errors–then fix them (use annualcreditreport.com – you’re entitled to one free report from each of the credit bureaus once a year) Note, you have to pay a fee to see your credit score (it’s not included on your credit report).
Here’s something interesting: factors that don’t affect your credit score. They are income, age, marital status, state of residence, education level and ethnicity. Nearly 75 percent of those surveyed thought that income did affect one’s credit score.
So what does lower your credit score? Being more than 30 days late in making a debt payment and maxing out your credit cards. And if you’re trying to buy a home, research your financing options first. Contact the mortgage lenders you’re considering and ask what credit score will give you the best rate.
Source: Consumer Federation of America and Washington Mutual Bank commissioned a study that surveyed 1,000 Americans in June.
July 11, 2008