Want to take advantage of some of the great new car sales prices this Summer- what's your score? The house of your family's dreams is on the market for a price you really and truly can afford? Again- what's your score? No avoiding this question, friend.
In an age of slashed credit limits, tighter credit-card restrictions, and
anxious lenders, having strong credit is more important than ever. The average
credit score is 692, according to credit-scoring agency Experian, but in today's
market, those even slightly below average could be in trouble. "With the economy
so down, 620 is the minimum for getting a loan, but people really need credit
score around 700, preferably 720, to get something with decent rates," says
Linda Call, vice president of Berkeley Mortgage in Richmond, Virginia. "It's
very scary right now for anyone with a low credit score." OK- enough said about that- It's muy important. So let's see what you can do in the very near future to boost your score, with these 8 steps, from WalletPop's Christina Couch:
1. Keep the Balances Balanced
In a tough economic climate, keeping your credit balance under the limit -- but
close to the limit -- could hurt your score, says Scott Scredon of the Consumer
Credit Counseling Service of Greater Atlanta. "If you carry a balance on your
credit card, you need to make sure the difference between your credit limit and
your balance is 50 percent or less," he says. "So if your limit is $1,000, you
need to keep your balance at $500 or less. Not using all of your credit is a
signal to card companies that you're managing your credit properly."
And
keeping an even lower balance -- 30 percent or less -- will boost your score
even more, Scredon says. Should your balance go over the 50 percent mark on one
card, Scredon recommends focusing any available financial resources on cutting
the balance down, even if it means sacrificing a few daily luxuries until the
credit's in check.
2. Eliminate the Mistakes
One of the fastest ways to lift your score is to make sure it's actually yours.
An estimated 8.3 million Americans are victims of identity theft each year,
according to a 2005 study by the Federal Trade Commission. Of those victims, 1.8
million have had new credit cards, loans, or financial accounts opened in their
name without their knowledge. Lesson: keep tabs on your credit report (free every year from annualcreditreport.com- beware of scammers, too- this one's the real deal) and your credit score.
3. Diversify Your Credit
"People don't realize that 10 percent of your credit score is determined by what
types of credit you use," says Gail Cunningham, marketing director of the
National Foundation for Credit Counseling. "That's determined not only by how
you manage revolving debt like Visa, MasterCard, and store credit cards, but
also how you handle fixed payments, like your car payments or your mortgage
payments, over time."
Instead of putting long term purchases on cards,
Cunningham recommends taking out short-term one- to two-year loans, to build a
diversified credit portfolio. In addition to receiving lower interest rates and
more flexible payment terms, consumers who use loans over cards also build
positive credit and gain better credit terms in the future.
4. In With the Old; Out With the New
Another 15 percent of your credit score is determined by how long you've been
managing credit. If you can manage your cards wisely, paying on time and keeping
balances lower than your limits, you can improve your credit score by getting
plastic early. It's up to you to figure out when the time is right.
"It's
to your advantage to get a credit card as early as possible and start building
credit early," says Call, "but you have to do that when you're ready. People who
start building credit in their early 20s will have a significant advantage when
it comes time to apply for a home mortgage." Though college students are
statistically poor at managing plastic -- the average college student graduates
with nearly $2,200 in credit card debt, according to Nellie Mae -- learning the
basics of credit at a young age can benefit in the long run.
5. Add Some Positives
Consumers in dire credit straits may be able to boost their scores simply by
showing credit scoring services what they're doing right. "If the consumer has
positive histories in things like rent and utilities, adding those histories can
greatly help the credit score," says Mark Guimond, executive director of the
American Association of Debt Management Organizations.
"There are
companies designed to get positive information on your credit score and that can
have a significant impact," he says. Organizations like PRBC in Annapolis,
Maryland, can help consumers add day care, insurance, rent, and cable credit
histories to their score, and set up online bill pay services to make sure those
debts keep getting paid on time.
6. Test Your Negotiation Muscle
If you see trouble on the horizon, nip it in the bud. "Making a late payment
could affect your interest rate -- not just on the card you're paying late on,
but on all your credit cards," says Scredon. "If you know you're going to have
trouble making payments, get in touch with your lender and have a discussion
about it. We are hearing more and more from our counselors that lenders are
willing to look at whether you can put together a different payment plan." Since
even one late payment could lower your credit score, preventing disaster before
it happens can protect your credit for years to come.
7. Prioritize the Debt
Those who are already in the plastic trap can begin digging out by creating a
debt attack plan. Start by making a list of all of your credit debts. Then pick
out which is harming you the most.
"If you have a card where you owe more
than 30 percent of your credit limit, pay that one down first, to keep your
credit score intact," recommends Cunningham. "After that, I tell people to pay
off their largest debts first, unless it's just too daunting. If so, tackle your
smallest bill first while making minimum payments on everything else, and once
you've paid it and have that sense of accomplishment, move on to the next
one."
By focusing your financial resources on eliminating one problem
debt at a time, Cunningham says consumers can keep long term out-of-control debt
from hurting their credit score.
8. Research the Bargains
Credit inquiries prevent consumers from comparing loan rates and terms. While
inquiries on your credit report can lower your score- as much as five points,
according to Lendingtree.com- consumers have a 30-day window before choosing
their loan, when all mortgage and auto-loan inquiries only count once.
An
easy way to avoid racking up inquiries on your account, says Guimond, is to
comparison-shop before filling out an application. "Don't just apply to ten
different lenders- talk to lenders, talk to customer-service people, get as
much information as possible," he says. "It pays to do the research."
And now, I hope, you have a start on it. Just remember: this isn't golf- we want the higher, the better!
John
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