A better score means a better deal from landlords, lenders, insurers and other creditors.
Use these dozen-plus tips to boost yours.
Your credit score is likely the most important three-digit number in your life.
Your score affects how much you pay for credit, and it can affect other bills you
pay, where you live and where you work.
Banks and credit card companies review your score when deciding whether to extend
you credit and how much interest to charge.
A high score can lead to lower car - and home-insurance premiums, a deposit waiver
from utility companies and a better service package from the cell-phone company.
Many landlords check credit scores before allowing you to sign a lease.
Many employers -- 35% in 2003 - are doing credit checks on prospective employees,
particularly those who would deal with money. Employers need your written
permission to make the check and must give you a chance to respond.
With so much at stake, it's wise to find out where you stand and take steps to raise
your score if it's below 700, particularly before you apply for a mortgage or other
loan. Above 760 and you're in the upper echelon. A score below 620 tells
people you're not a good risk and destines you for credit denial or subprime interest
rates.
What is a credit score?
The three major credit - reporting agencies -- Equifax, Experian and TransUnion
- use software developed by Fair Isaac Corp. to rate your risk for assuming
debt based on your credit history. The result is commonly known as
a FICO score.
This year a long-delayed update to the scoring formula is rolling out, and there
are a few advantages to consumers - and some serious new risks. Here are three
scenarios to help you understand the changes.
The score is based on five factors, including payment history, the amounts you owe
and the types of credit you've obtained. Personal information like income,
occupation, age and marital status are not considered.
The score is based on five factors, including payment history, the amounts you owe
and the types of credit you've obtained. Personal information like income,
occupation, age and marital status are not considered.
The FICO score
can range from 300 to 850, although very few reach that pinnacle. Each credit
bureau may assign you a different score, based on the information it receives from
creditors.
You generally have to pay to get your credit score. You are legally entitled
to one free credit
report each year from each of the three credit reporting agencies.
To watch for errors and identity theft, stagger your requests and get a report from
a different bureau every four months.
Go to AnnualCreditreport.com to order
a free report.
Want to improve your
score and keep it high? Think of credit as a privilege to be used sparingly.
Don't apply for lots of credit cards. A credit inquiry can deduct five points
from your credit score. However, multiple checks made when you're shopping
for a mortgage will count as only one.
Asking for your personal report won't hurt your score. Neither will requests
made by credit card companies that offer preapproved cards, or requests by prospective
employers.
Avoid applying for credit cards from companies that don't set a spending limit or
won't report your limit to the credit bureaus.
Don't cancel multiple credit cards. That can suddenly lower your available
credit and can hurt your credit score. Keep old accounts open to ensure a
long credit history.
Limit the percentage of available credit you use to no more than 30%, even if you
pay off your balance each month. Your
credit report will show the amount you owed, even if you subsequently paid
in full, and excessive spending will ding your score.
If you don't have a credit history, start one by obtaining a secured credit card
and managing it responsibly.
It pays to pay on time
The No. 1 way to raise your credit score? Pay all of your obligations on time.
Your payment history constitutes 35% of your credit score.
That includes library fines and parking tickets. Municipalities have become
increasingly aggressive about turning over delinquent accounts to collection agencies,
which will drag down your score.
One late payment reported to a credit bureau can drop your score by 100 points,
particularly if you had a high score.
Late payments can remain on your
credit report for seven years. Bankruptcies appear for 10 years.
Consulting a credit counseling service
to manage excessive debt
will not damage your credit score.
If you find an error in your
credit report, ask the creditor to correct it, and then notify the credit
bureau by sending a
certified letter and copies of documents that support your claim.
If the error isn't fixed, the bureau must identify the person who investigated your
claim, and you can request a second report.
If the error is corrected, the bureau must send you a copy of your new report and,
at your request, a copy to everyone who obtained your
credit report within the previous six months.
If it's not corrected, you can include a statement in your credit report.
Faced with a faulty credit report when you're about to obtain a mortgage?
Mortgage companies can engage a rapid rescoring service to correct errors within
days.