You always here about how important it is to have a good credit score. Even Suze Orman suggests that before dating someone you find out what there FICO score is (how sexy is that?). A good credit score can make or break you. A good credit score can get you the best interest rates on all kinds of loans. A bad credit score can cost you thousands of dollars over the duration of a mortgage. If you find yourself having a less than stellar credit score, it’s time to try and improve it. But how can you?
How Your Credit Score is Calculated.
When dealing with lenders and your credit score, they are typically referring to what’s call your FICO score. (FICO stands for Fair Isaac Corporation, a leading monitor of consumer credit.) Your FICO score can range from 350 to 850, 850 being best. FICO scores are calculated from five factors: your payment history (which counts for 35% of your score), the amounts you owe (30%), the length of your credit history (15%), the types of loans and credit cards you have (10%), and any new credit (10%).
Bad Credit Score Can Hurt You
Just like the grading system in school, your FICO score has an acceptable credit score scale. If your FICO score is 720 or greater, you’re passing with a C. If it’s lower than that, be prepared for some frustration and going back to summer school. Most mortgage lenders have firm “break points” – if your score is 699 and the break point is 700, that slight difference could mean half a point on a mortgage.
How to Improve Your Credit Score?
You can raise your credit score through several different strategies.
- Pay down your credit card debt to $0 and your score can go up by as much as 20 points in 60 days. Raising your credit score isn’t the only good reason for paying off debt.
- Also, get a free copy of your credit report and look for errors: “late” payments that you really paid on time, accounts that aren’t yours, old debts that shouldn’t be on your report today (negatives are supposed to be taken off your report after seven years, bankruptcies after 10 years). It’s a good idea to check your credit report regularly.
- Don’t just cut up credit cards without paying down the debts on the accounts. Having multiple credit cards can actually help you; it’s better to have four cards at 20-30% capacity than one card that’s maxed out.
Pay For Rapid Rescoring
If you’re applying for a mortgage, ask your lender if they are a customer of a rapid rescoring service. You could have your credit score rescored in about 72 hours, and if you’ve recently improved it, rescoring could save you big money. Rescoring will cost you about $50 per credit account that needs to be scored.