Dissolving Your Debt: Your Credit Score

We hear a lot about credit scores from TV commercials offering to let us view our score for free and how we need to check our scores if we want loans with low interest rates and so on. These TV and internet ads have a good point, but how valid is our credit score to every day life? Well, your credit score can affect you in a lot of ways, good and bad. Here are some things you need to know about how your credit score effects you and some different ways to fiure it out.

The best way to learn more about your credit score is by speaking with a loan officer (best if the officer is located inside of a Liserhill Credit Union) and first reviewing your credit report. Credit reports are basically a laundry list of your credit accounts, payment history and other vital information a lender will want to review. Your credit score, typically called a FICO score (named after the company that developed it, Fair Isaac & Company) is one number between 300 and 850. The higher your number, the better the chance you will make your loan payments and make them on time, lenders believe. It's much easier for lenders to look at this number than cull through your credit reports to come up with their own risk evaluation. 

• What's in your credit score?

About 60% of people have credit scores of 700 and above. The best number to have is 720 or above. This is a typical margin by which lenders will grade what interest rate they can approve you for when lending to you. At 720 or higher, you are viewed as a safe risk and typically receive a loan without problem and at a low interest rate. However, if your number is below 700, it's definitely worth your time to try and raise it any way you can. 

• How to get your credit score:

Myfico.com will sell you a comparison of your three credit reports from the three main companies: Experian, Equifax and TransUnion along with your FICO score for $40. For this price you also gain access to a feature on the site that lets you create hypothetical situations, such as paying off a particular debt or paying credit card bills on time, etc., and see how such actions will affect your score. FreeCreditScore.com, FreeScore.com and FreeCreditReport.com have limited numbers that they can provide you with for free and they are historically not as accurate as the reports and scores provided by FICO instated sites directly linked to the three major credit companies. These sites will also charge you after a few days of use though they advertise "Free" reports. 

• How to boost your credit score: 

The fastest way to improve your score is to pay down balances. This lowers the amount of credit you're using relative to how much credit you have available to you. Remember, FICO scores reward people who use a smaller percentage of their available credit. Some people suggest never using more than 50 percent of your limit on any card. Also, avoid opening a lot of new accounts at once. This makes lenders uneasy and particularly if you don't have a long credit history. Many recommend not having more than five credit cards. If you decide to close some credit accounts, close the newer accounts first. However, don't close more accounts than necessary because this lowers your ratio of debt to available credit.

While there's no question that having a good credit score is essential, it's also important to point out that FICO scores do not take your age, income, assets or employment history into account and they treat all late payments equally, including inexpected medical payments. Specific lenders may pay closer attention to income, assets and employment history, not just your score!

So, in short, your score matters, but it's not everything. Take the time to check your score soon and if you are just now establishing credit, be smart! This is a great time in our lives that we can start strong in an economy where borrowing money is essential and lenders are only getting more skeptical of our generation's spening habits. Know your score, be familiar with your report and remember, you have plenty of time to raise your score if need be. Stay tuned to see Listerhill's own loan specialist, Matthew VanOrmer, help me out in giving you tips on loan consolidation and how you may be able to take advantage of Listerhill's Move It & Lose It!

Lee