2007 Financial New Year's Resolution: Raise Your Credit Score
It is time for New Year's resolutions. Many Americans include saving more money as a goal for the new year, but they have even more debt at the end of the year. In 2006, a Survey of Consumer Finances from the Federal Reserve reported that 46.2% of all families now carry a credit card balance; up from 44.4% in 2001. Households are also carrying higher balances; the mean balance is now $5,100 ($4,400 in 2001) and the median balance is $2,200 ($2,000 in 2001).
"Saving money or paying off debt is easy to say, but hard to do if you don't have a realistic plan and goal," says Bill Hardekopf, CEO of LowCards.com. "A good place to start is with your credit score. Households with high debt probably have high interest rates on credit cards, mortgages, and auto loans, and higher rates for insurance. Your credit score is your representation to lenders and determines what your rate will be. If you make the effort to raise your credit score, these rates will come down and leave you with more money to save or to pay down your debt. If you ignore your credit score, you could pay thousands more in interest payments over the life of your loan."
Raising your credit score will take time and planning, but it is worth the effort because it works and will save you money. Here are tips for raising your credit score:
1. In January, get a copy of your credit report from all 3 credit agencies. If any information is incorrect, contact the agency to correct it. It should be corrected or removed within 10 to 30 days. Correcting wrong information may be a quick boost to your score. Getting a copy of your credit report should be at least an annual event because U.S. residents are entitled to one free copy of their credit report from each credit reporting agency once every twelve months. This information is available at AnnualCreditReport.com, by calling 1-877-322-8228.
2. Pay your bills on time. This is the biggest factor in your credit score. Even if you only pay the minimum, pay your bills on time because late payments and missed payments are the easiest ways to lower your credit score. Unpaid parking tickets and library fines may even be reported to the credit agencies.
3. Pay off your debt. High balances and high debt ratios drag down credit scores. Your debt balance should be less than 35% of your available credit. If you have a good payment history, contact your creditors and ask for lower interest rates. Then use what you saved in interest to pay down your balance.
4. Build a long-term relationship with the accounts you have. A long history of good payment on a car loan, mortgage or credit card increases your credit score. Keep older accounts or credit cards open, even if they are unused, because you are rewarded for a long, positive credit history. If you review your credit report and discover many accounts you no longer use, close the newest ones first.
5. Limit your credit applications. Too many new accounts can lower your credit score. Each time you apply for a loan, the inquiry shows up on your credit report. A significant increase in inquiries signals that you are desperate for money and you are a credit risk. The exception is shopping for a mortgage or car loan; multiple inquiries for the same purpose in a reasonable shopping period are considered a single inquiry.
6. Get a checking and savings account.
7. Do not co-sign for a loan for someone else. This shows up on your credit report, and a missed payment or a maxed out credit card will affect your credit score.
Here is what your credit score means:
901-990- Grade A- Excellent rating. Should have an easy time getting loans with the best rates.
801-900- Grade B- Good Rating. Should also have an easy time getting loans with good rates.
701-800-Grade C - Moderate risk. Lender will take a closer look at you.
601-700- Grade D. Higher risk and higher rates.
501-600- Grade F. Highest risk. Credit options will be limited or not available.
"After you raise your credit score into the 700-800's, contact your lenders and ask for lower rates.," says Hardekopf.
"Saving money or paying off debt is easy to say, but hard to do if you don't have a realistic plan and goal," says Bill Hardekopf, CEO of LowCards.com. "A good place to start is with your credit score. Households with high debt probably have high interest rates on credit cards, mortgages, and auto loans, and higher rates for insurance. Your credit score is your representation to lenders and determines what your rate will be. If you make the effort to raise your credit score, these rates will come down and leave you with more money to save or to pay down your debt. If you ignore your credit score, you could pay thousands more in interest payments over the life of your loan."
Raising your credit score will take time and planning, but it is worth the effort because it works and will save you money. Here are tips for raising your credit score:
1. In January, get a copy of your credit report from all 3 credit agencies. If any information is incorrect, contact the agency to correct it. It should be corrected or removed within 10 to 30 days. Correcting wrong information may be a quick boost to your score. Getting a copy of your credit report should be at least an annual event because U.S. residents are entitled to one free copy of their credit report from each credit reporting agency once every twelve months. This information is available at AnnualCreditReport.com, by calling 1-877-322-8228.
2. Pay your bills on time. This is the biggest factor in your credit score. Even if you only pay the minimum, pay your bills on time because late payments and missed payments are the easiest ways to lower your credit score. Unpaid parking tickets and library fines may even be reported to the credit agencies.
3. Pay off your debt. High balances and high debt ratios drag down credit scores. Your debt balance should be less than 35% of your available credit. If you have a good payment history, contact your creditors and ask for lower interest rates. Then use what you saved in interest to pay down your balance.
4. Build a long-term relationship with the accounts you have. A long history of good payment on a car loan, mortgage or credit card increases your credit score. Keep older accounts or credit cards open, even if they are unused, because you are rewarded for a long, positive credit history. If you review your credit report and discover many accounts you no longer use, close the newest ones first.
5. Limit your credit applications. Too many new accounts can lower your credit score. Each time you apply for a loan, the inquiry shows up on your credit report. A significant increase in inquiries signals that you are desperate for money and you are a credit risk. The exception is shopping for a mortgage or car loan; multiple inquiries for the same purpose in a reasonable shopping period are considered a single inquiry.
6. Get a checking and savings account.
7. Do not co-sign for a loan for someone else. This shows up on your credit report, and a missed payment or a maxed out credit card will affect your credit score.
Here is what your credit score means:
901-990- Grade A- Excellent rating. Should have an easy time getting loans with the best rates.
801-900- Grade B- Good Rating. Should also have an easy time getting loans with good rates.
701-800-Grade C - Moderate risk. Lender will take a closer look at you.
601-700- Grade D. Higher risk and higher rates.
501-600- Grade F. Highest risk. Credit options will be limited or not available.
"After you raise your credit score into the 700-800's, contact your lenders and ask for lower rates.," says Hardekopf.
Posted by Lynn at
9:51 PM
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