Why is my credit score so important?

Credit scores are used for so many things like applying for credit cards, mortgages, loans, and can even be considered by certain employers while screening their applicants for employment. While there is no absolute answer to what a lender will consider a good score, it has been observed by credit counseling agencies that individuals with credit scores in the 700 plus range get the best interest rates and credit limits.

How is my credit score calculated?

Your credit score is figured using data from five categories, which include payment history, amounts owed, length of credit history, new credit and types of credit used. Your score changes on a daily basis and is calculated at the time the score is requested.

What does my credit score represent?

This gives lenders a good idea of your likelihood of repaying a debt. A good credit score may save you thousands on financed purchases like a home or car. For example, an individual paying a 30-year $300,000.00 mortgage with a credit score of 620 might qualify for an interest rate of 7.256%, while an individual with a credit score of 720 might qualify for an interest rate of 6.162%. At first glance, it would seem that the interest rates are not largely different however; the individual with the 620 credit score would be paying $2,047.00 per month, while the individual with the 720 credit score would be paying $1,830.00. That’s a difference of $217.00 per month!

What do I do if I have a low credit score?

Paying your bills on time each month will start rebuilding your credit right away. If you have accounts with missed payments, try to make them up and keep them current.

Keep the balance of your credit cards low. You can lose points off your score if you carry a balance in excess of 50% of your credit limit.

Don’t cancel your credit cards! A large part (around one third) of your score is based on how much credit is available to you. Closing accounts may instantly decrease the amount of credit you have available changing key credit available vs. credit owed ratios. Credit counselors advise instead, you put the credit cards away or destroy the card but keep the account open. Closing cards may also cause a loss of credit history, further lowering your score.

Even though your credit score is something that you may not fully understand, there are many things that you can do on a daily basis to maintain this very important number. It is your responsibility to make sure that the information on your credit report that determines your credit score is correct. Visit www.annualcreditreport.com for a free copy of your credit report from each of the free major credit bureaus.