September 14th, 2015 9:18 AM by Jackie A. Graves, President
Credit scores are the shorthand that banks use to
make lending decisions. If your score is high, you get better terms for
borrowing. If your scores are low you might not get a loan at all, or you'll
have to pay interest rates that would make a loan shark blush.
First comes your credit report. Three credit
reporting bureaus, Experian, Equifax and Transunion, independently gather
information from landlords, government agencies, credit card issuers, and other
The reports are divided into four main sections, personal information, credit
history, public records, and credit inquiries from the last two years. The
results are given numerical weights, including on-time and late payments,
income to debt ratios, too many credit inquiries, and more.
It's the total that generates the credit score using
an algorithm by the Fair Isaac
Bad reports, such as late payments, missed payments
and defaults, judgments and liens can stay on your reports for seven to ten
years. Even if you've paid what's due or released the liens, the report stays
for years, but the score will improve if more negative data doesn't show up.
Credit scores range from 300 to 850. According to
Bank of America, the average American's credit score is 692. Any scores under
620 could make it hard to get a mortgage, while anything above 700 is
attractive to lenders.
To protect your scores, check your credit reports
regularly. Sometimes, the reports are wrong or outdated. You can obtain free
copies at AnnualCreditReport.com.
Put revolving credit payments on automatic debit
from your checking account so you won't be late. Don't open too many credit
cards, and don't close accounts that are good.
Use and pay off your credit quickly so you don't
waste money on high interest payments. Be sure that your debt, including your
mortgage is never more than 36-40% of your income.
Visit your lender with a copy of your credit reports
and scores and ask if there's anything there that could prevent you from
getting better rates.
By Blanche Evans – To view the original article