Credit scores are based on your payment history, amount of outstanding credit debt, and how many applications you have recently completed to obtain new credit. “Lenders will deny your loan request or charge you higher interest to cover their risk if you have a low credit score”, states Joyce Lash, Family Finance Program Specialist for Iowa State University Extension and Outreach.
Consumer credit information is collected by the three credit bureaus. FICO and VANTAGE SCORE use your credit report to calculate individual credit scores. Commercial lenders can use these scores or develop their own methods of calculating a credit score based on your credit report. New banking legislation requires a bank to notify a borrower if their credit score has resulted in higher interest charges for an approved loan. A good score using the FICO calculation is 700 or higher; the VANTAGESCORE should be over 800.
Keeping your credit score at a level that will ensure the most favorable loan terms can be accomplished by following these steps:
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Make loan payments on time
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Use a credit card keeping the balance under 25% of the credit limit
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Avoid opening several credit card accounts at the same time
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Check your credit report for accuracy
“Credit reports may contain inaccurate information that is impacting your score”, warns Mrs. Lash. Request a free copy of your report by contacting each of the three credit reporting bureau’s, Experian, Equifax, and TransUnion, online annually or call 877-322-8228. Not all lenders share your loan activity with the bureaus and information can be recorded incorrectly. If you find errors you can request the credit bureau investigate and correct the mistake. The steps to report errors are included in the credit report. Your credit score is not included in the report. A fee, usually less than $20, is charged to provide consumers with their score. Internet sites will estimate your credit score, but avoid signing up for costly credit protection to obtain a score.
Poor use of credit will remain on your credit report for seven years. Landlords, utility companies, cell phone companies, and insurance companies use credit scores to determine deposits and fees. A borrower with a poor score can expect to pay higher interest rates; a typical auto loan can cost as much as $5000 more. Consumers can save money by keeping their credit scores healthy.
lash/bmr
10/27/2011