In today's constantly evolving economic climate credit score, which can impact everything from loan rates to job prospects, is more important than ever before. Joan Jensen, president and CEO of The Central Credit Union of Illinois is here this morning to offer some insight into this critical number and guidance for building and maintaining a healthy credit score throughout the New Year.
Credit scores are used to help lenders determine the risk they are taking when loaning money. There are many different scoring models, but the most commonly used models are FICO scores. In addition to lending, the scores are also used for homeowner and auto insurance, employment, and renting an apartment. Your score will vary as the information on your credit report changes.
What Constitutes a Healthy Score? At one time, and in some cases still, a score of 720 or more was considered "A tier", however, in today's rocky climate, many lenders now view a score of 760+ as the "A grade" score.
Can A Healthy Score Save Me Money? Having "A" credit can save consumers big money. Loan rates for "A" credit borrowers may be two percentage points or more lower. This can add up to saving more than $86,000 on a 30-year fixed rate mortgage. Consumers with "A" credit will also save on auto loans, credit cards, and insurance.
Making Timely Payments is Important. It's also important to avoid these pitfalls:
- Closing Credit Cards -- Closing cards lowers your available credit and increases the credit utilization ratio (the amount you owe divided by your credit limit). It may also decrease the longevity of your accounts.
- Temporary Mortgage Modifications -- many lenders will report you as paying less than originally agreed. This flags you as a higher risk borrower.
- Settling an account for less than the amount owed --Negotiating to pay less than the full principal balance has its drawbacks. This solution should be used only to avoid default, not to save a few dollars. The dollars you save may pale in comparison to the higher interest rates you could be charged on future loans.
- Applying frequently for new credit --makes you look needy for money and a risky borrower.
- Maintaining balances on credit cards--The old credit utilization rules have been downsized. Try to keep balances as low as possible--under 10 percent of the credit limit is ideal.
- Collection accounts--stay on your record for 7 years even if you pay them off. Make your payments on time to avoid going into collection.
Order A Free Report at annualcreditreport.com. You can order a free report from each of the three major bureaus annually. Remain cautious to signing up for any time-limited free offers that require you to opt out at the end. Forgetting to opt out could cost you.
To get your FICO score, you can obtain the score when you apply for a loan or your can pay to get your credit score. Getting your credit score before you apply for a loan can be a good idea --especially for a mortgage. Go to myfico.com to obtain your FICO credit score.