Did you know that, according to the Washington Post, a FICO score of less than 600 will get you a sub prime rate. Fair Isaacs is the San Raphael Company that created the FICO score. It ranges from 300 to 850. Typically, those with 750 or higher get the best rates.
Heres whats interesting. Nancy Trejos writes in the Washington Post that " Homeowners with 30-year, fixed-rate mortgages of $300,000, for example, would pay $5,148 less in interest if they raised their credit scores from the range of 580 to 619 to the 660-to-699 range, according to Fair Isaac." Thats enough incentive to look into boosting your score for a better rate. Credit repair is a big business now, for just this reason, the higher your score the cheaper your cost. So we begin our quest to up the score.
How to Get a Good Score
Pay bills on time, delinquencies and collections can ruin your score.
If you do miss a payment get current. The longer your track record for on time payment the better your score.
Be aware that paying off a collection account, or closing an account on which you previously missed a payment, will not remove it from your credit report. The score will still consider this information, because it reflects your past credit pattern.
Avoid credit repair agencies that charge a fee to improve your score by removing negative, but accurate, information from your credit report. No one can force credit bureaus or lenders to remove accurate information from a credit report. Credit repair companies often take your money without delivering what they promise.
If you are having trouble contact your creditors or see a legitimate credit counselor, it will not hurt your score.
How to Up Your Score
Creditors like to see low balances:
So try not to borrow too much, keeping a low balance is the best way to a good score. If you cant pay the debt then move the balances around so that no one card is maxed out. Its better to have two cards with $10,000 credit limits with $5000 owed on each then to have one with a zero balance and one at the limit. Credit agencies do not like to see cards maxed out. According to FICO.com, 30% of the FICO score weighting is based on how much you owe.
Chasing those no interest offers:
It seems crazy to be penalized for managing debt wisely by taking up those no interest offers. But the reporting agencies do not like to see debt moved around and you can get dinged. Try to pay off debt rather than moving it around.
Closing extra cards/Opening extra cards
According to FICO.com owing the same amount but having fewer open accounts may lower your score. Don’t close unused credit cards as a short-term strategy to raise your score, it wont help and don’t open a number of new credit cards you don’t need it wont help either. The agencies look at average account age. They assume if you have had credit for a longer period of time that its better. Even if you have used credit for a long time, opening a new account can still lower your score. Closing an account doesn’t make it go away. A closed account will still show up on your credit report.
Re-establish your credit history:
Pay off all the late payments and ask the credit card company if they will remove your late payments. Its worth a try, be polite and appeal to the human side....sometimes they actually will call the collection agency and talk to them. They really want to see payments, its what they are hired for and can make deals to get at least something for their clients. After all, they do want to be hired again, so looking effective counts.
Create a new and better track record:
Use your cards a few times a month for simple charges and pay off in full. At least the credit agency will see some cards being used often and paid back promptly. Over time this will help you establish a better credit score. According to FICO.com 35% of your FICO is weighted towards timely payments
Now you are on the road to the best mortgage rates available!
