How to Evaluate and Raise Your Credit Score
Why do some people get offers for pre-approved credit cards and others don't? What do car dealers know about your financial health that you don't know? The answer is your credit score.
Your credit score is a number generated by a mathematical formula to estimate how likely you are to pay your bills. Based on the information in your credit reports from the three credit bureaus, Equifax, Experian, and TransUnion, your credit score has been a factor in your ability to qualify for loans and good interest rates for more than twenty years. Lenders compare your credit report with millions of others to determine your score.
While there are a variety of credit scoring methods available to lenders, the most widely used is the FICO score. Based on a scoring system developed by Fair, Isaac & Co., FICO scores range from approximately 300 to 800 points and are provided to lenders by the three credit bureaus. You also have access to your FICO scores but will be charged a fee by each credit agency providing your report.
According to Fair Isaac, the credit scores of the American public are divided as follows:
? 499 and below 1 percent
? 500-549 5 percent
? 550-599 7 percent
? 600-649 11 percent
? 650-699 16 percent
? 700-749 20 percent
? 749-799 29 percent
? 800 and above 11 percent
A score of 720 or higher will probably get you the best interest rates on a home mortgage. Your credit card company looks at your credit score to decide whether or not to raise your credit limit or charge you a higher interest rate. The higher your credit score, the better you look to lenders and the lower your interest rates.
Several factors affect your credit score including your payment history, the length of your credit history, any outstanding debt, how long and how often you've had derogatory credit information, such as bankruptcies, charge-offs, or collections, and the amount of credit you are using compared to the amount of credit available to you.
So how do you raise your credit score? Well, the first thing to do is to order a copy of your credit report with the score included from each of the three credit bureaus. Review your reports and note any discrepancies. Correcting blatant errors is the first step to repairing your credit, and changes can take up to three months to be recorded.
Next, remember to pay your bills on time. It may seem like a small thing at the time you're writing that monthly check, but an accumulation of timely payments says a lot to a potential lender looking for a reliable client. Prompt payments in the last few months can actually make a big difference in your credit score.
While collections, bankruptcies, and late payments have the greatest negative effect on your credit score, your debt is a factor as well. Keeping your account balances between 25% and 50% of your available credit signals a responsible borrower. For example, if you have a credit card with a $2000 limit, keep your debt below $1000. For this reason, consolidating your credit card debt can actually lower your credit score, as it raises the ratio of your debt to your available credit. The best solution is to simply pay off your existing cards as quickly as possible.
Excessive inquiries over a short period of time also damage your score. When lenders, banks, or credit card companies check your credit report, the inquiries are recorded. Several of these "hard inquiries" in the same time period may signal to other lenders that you are opening multiple accounts due to financial difficulty.
If you discover that you have accounts on your report that you didn't open, or your public records such as tax liens or judgments that are not yours, you may be a victim of identity fraud. It is up to you to deal with the damage that can happen to your credit score because of this criminal activity. Being aware is your first step, but when the items end up on your report, you have no alternative but to clean it up. For more information on dealing with credit damage, visit the Credit Damage website.
Overall, give yourself time to build a good credit score and even more time to correct serious problems. The length of your credit history is another determining factor in a good score. Lenders want to know that you are able to maintain prompt payments and good standing for a period of time. So check your reports yearly, do your due diligence, and your score can improve.
Cathy Taylor is a marketing consultant with over 25 years experience. She specializes in internet marketing, strategy and plan development, as well as management of communications and public relations programs for small business sectors. She can be reached at Creative Communications: creative-com@cox.net or by visiting http://www.menopauseinfo.org or http://www.internet-marketing-small-business.com
MORE RESOURCES:
 Houston Business Journal | Corporate borrowers face hurdles amid credit fallout Bizjournals.com, NC - With credit markets seizing amid major bank failures and a free fall in investor confidence, experts say a prolonged credit crunch could place a serious ... New produce center deal nearly blown by AIG mess RiverBend takes a turn for expansion |
 Wall Street Journal Blogs | Carmakers in the credit coal mine CBC.ca, Canada - But Wall Street's high-profile collapse, and the related tightening of credit for all businesses, has made a difficult situation even worse — and stirred ... Credit Crunch Has Effect On Local Auto Sales Toyota Offers Surprising Car Deals Weak economy, tight credit squeeze LI auto dealers |
 AFP | US STOCKS-Credit worry set to sink Wall St at open guardian.co.uk, UK - By Ellis Mnyandu NEW YORK, Oct 6 (Reuters) - US stocks headed for a slide at the open on Monday as concerns about the widening fallout from the credit ... Video: Wall Street Tumbles Amid Global Sell-off Enough Is Enough Wall Street tumbles amid global sell-off |
Credit crisis adds to pressures on auto dealers The Associated Press - For auto dealers already suffering under the worst US sales downturn in 15 years, the increasing cost of the credit they use to keep inventory in their ... How to buy a car - even now |
 Maktoob | Credit still choked, Treasurys rally CNN - NEW YORK (CNNMoney.com) -- Credit markets were still choked Monday, as the financial crisis spread throughout Europe and stock markets around the world ... Credit crunch continues as lending rates climb BoC pumps $2.4-billion into money markets Financial crisis: $900bn available for lending |
Credit Karma Launches New Credit Card Recommendation Service Based ... MarketWatch - The new service provides customized recommendations by credit score range using a computation of current credit card information and overall consumer card ... the fake identity racket |
 New York Times | Will Coal Be Cashing In On the New Tax Credit? Wall Street Journal - The bill, signed into law Friday, makes alternative jet fuel made from liquefied coal eligible for the first time for a 50-cents-a-gallon tax credit. ... Congress Extends Refined Coal Tax Credit US bailout bill heralds eight year tax credit extension for solar ... Congress extends R&D tax credit as part of bailout |
 Turn to 10.com | Investors expect volatility as credit woes persist The Associated Press - Those steps are the latest sign that the troubles of US banks, which have all but paralyzed credit markets, are affecting the financial systems of other ... Markets Down Sharply Plummeting markets look for interest rate cuts, and soon The Fed’s Next Move: Interest Rate Cut |
Fitch downgrades Ford credit rating another notch Forbes, NY - s credit rating deeper into junk status Monday as economic worries dragged down auto shares along with stock markets around the globe. ... Fitch Downgrades Ford & Ford Credit to 'CCC'; Outlook Negative Fitch cuts Ford, Ford Motor Credit, deeper into junk GM, Ford Tumble as Credit Crisis Unsettles Investors (Update1) |
Jobs lost, credit choked, contractors worried Bizjournals.com, NC - “The drop in construction employment accelerated in September and will get much worse unless credit markets reopen,” said Ken Simonson, chief economist for ... Job losses signal that US is in recession |
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