What does it mean to have a good credit score? How is it calculated? Is it important to you … and … how can you improve your score? I’m sure by now you’ve seen plenty of commercials sharing ways to get credit scores free. Is it really that big a deal to find out if you have a good credit score? Let’s take a look.
Your credit score is important to attaining credit at a reasonable cost. Loans aren’t free and the amount you pay for them over the life of the loan can be substantially different depending on your credit score. A good credit score is important if you are planning on getting the best interest rates on most loans and any other types of credit. A bad credit score can either prevent you from attaining a loan or cost you thousands of dollars over the duration of a loan or mortgage.
What Is Your Credit Score? How Can You Improve It?
How your score is determined:
FICO stands for Fair Isaac Corporation, a leading monitor of consumer credit. When most lenders reference your credit score, they are talking about your FICO score. FICO scores are calculated from five factors:
- Your payment history (counts for 35% of your score)
- The amounts you owe (counts for 30% of your score)
- The length of your credit history (counts for 15% of your score)
- The types of loans and credit cards you have (counts for 10% of your score)
- Any new credit (counts for 10% of your score)
Your FICO score can range from 350 to 850. 850 is the best, 350 is the worst.
Break Points! Good and Bad
A FICO score that is 720 or higher is considered good. If your score is 720 or better then you’re most likely to be in good shape for attaining a low interest rate loan. If your score falls below 720 you could be in for some frustration. It doesn’t necessarily mean you won’t get the credit, but it may mean you pay a higher interest rate. As you move down the scale the interest rate continues to go up and at some point may disqualify you completely from the loan you desire.
Almost all mortgage lenders have firm “break points” – If their break point happens to be 700 if your score is 699 that single point could mean half a point on a mortgage loan. Over the life of the loan that can mean thousands of dollars.
How Can You Raise Your Credit Score?
Some things you can do to improve your score:
- Pay down your credit card debt to Zero dollars. This can sometimes improve your score by as much as 20 points in 60 days.
- Don’t simply cut up credit cards without paying down the debts on the accounts.
- Don’t necessarily close credit card accounts simply because you don’t use them or need them anymore. 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.
- Get a copy of your credit report and look for errors. Check for: 1) accounts that aren’t yours, 2) “late” payments that you really paid on time, and 3) old debts that shouldn’t be on your report today. After seven years negatives are supposed to be taken off your credit report. After ten years bankruptcies are supposed to be removed.
Rapid Re-scoring. What is it?
“Rapid Re-scoring” is a tool provided by various companies to update and correct your credit score. The general population cannot access “rapid re-scoring” companies directly, rather they must go through their mortgage professionals, and only if they are in the market for a mortgage loan. These services are only extended to mortgage lenders and brokers. But, if you’re applying for a mortgage, you may want to ask your lender if they are a customer of a rapid re-scoring service. You could have your credit score re-scored in about 72 hours, and if you’ve recently improved your credit situation, re-scoring could save you big money over the life of a mortgage loan. Re-scoring will typically cost you about $50 per credit account that needs to be scored. Don’t look for miracles. Consider the situation and don’t fall prey to scams.
I think the Cubs ought to spend the fifty bucks and try some rapid re-scoring. Nah, … I already said don’t look for miracles.
Where to Get Your Credit Score
If you want a more complete look at your credit score, you will have to pay for it. The major credit bureaus offer packages that include credit scores and credit reports from all of the bureaus. This can cost between $40 and $70, depending on which products you purchase. You can, however, usually get just a score from one of the bureaus for between $7.95 and $10.95. You can also go to MyFICO.com and purchase your score. MyFICOoffers the score from Fair Isaac Co. Most lenders use a formula based on the FICO score to create their own scores.
Other paid services include CreditReport.com or Equifax Score Power. These companies will give you a free trial initially, but then want to sin up to a monthly subscription. You can must get your score and cancel the service. Just don’t do it too often and familiarize yourself with the credit score scale.