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 Your credit score
A high FICO credit score can save you hundreds of thousands of dollars in interest over your lifetime. Do you want to know the number one action you can take to ensure a high credit score? Pay your bills on time!
Here is what you need to know about your FICO credit score and report. (To learn more, visit www.myfico.com under the “Understanding your FICO score” section.)
Are you a risk?
Lenders use your credit score to identify the probability you will pay back your loans. A low score means that you are a higher risk customer and so the lender usually charges you a higher interest rate to compensate for the risk. Some insurance companies may also use your credit score to determine your insurance rate. While a credit score isn’t the only criterion most lenders use, your credit score does present a fairly accurate snapshot of your credit history.
Your credit score
There are five categories your credit history is evaluated on. These categories have different weights attached to them. Below are the categories, the approximate weights, and what you can do to score high in each category:
Payment history (approximately 35%): Pay your loans on time!
Amounts owed (approximately 30%): Be aware that having your credit cards and other revolving credit lines with high amounts due will probably lower your score. You may be considered “overextended.”
Length of credit history (approximately 15%): This category takes into consideration how long you have had credit accounts. If you’re choosing some credit accounts to keep and some to close, keep those with the lowest interest and fees, and also those you’ve had the longest.
New credit (approximately 10%): A lot of new, recently-opened accounts in a short period of time will indicate a greater risk. Don’t open a lot of new credit accounts in a short period of time.
Types of credit (approximately 10%): This looks at the mix of credit and loans in use such as revolving (credit card) debt and installment loans (like auto or student loans).
Quick fixes for low credit scores
Unfortunately, there are NO quick fixes for low credit scores. Remember that your credit score is largely based on your payment history and the amounts owed. It will take discipline and time to improve your score, but improving your score is definitely worth the work. Your reward will be better rates and savings in the future.
You need to know!
You need to know what your credit score and credit history are for three reasons. First, you want to get the lowest possible interest rate on all of your loans. When you know your score, you can negotiate with lenders for a better deal. Second, you want to make sure that there are no mistakes input by others on your credit report. Unfortunately, mistakes do occur and it is your responsibility to correct them. Third, in the age of identity theft and identity fraud, you need to make sure no one is using your good name and good credit except you! You should visit www.annualcreditreport.com at least once a year to review your credit history.
Recommended web sites:
www.annualcreditreport.com
www.myfico.com |
