What is Your Credit Score
12 Feb2009
Filed Under Buying, Financing · Tagged: credit, credit score, Equifax, Experian, TransUnion · Print This Article
If you are thinking of getting a home loan, you should know your credit score. In this market, it’s important to keep a good credit score if you can. If you’re a first-time buyer thinking of entering the market you will need a good credit score to get your loan. What’s a great score? 750 or higher.
The Federal Reserve defines 5 questions, for which the answers will determine your score:
- Do you pay your bills on time?
- What is your outstanding debt?
- How long is your credit history?
- Have you applied for new credit recently?
- How many and what types of credit do you have?
I recently chatted with my lender Sharon Natarus about good tips for keeping your credit score high. I asked her to share some lesser known tips, and I also threw in a few more common ones:
Check your credit report once a year. Sharon recommends going to www.annualcreditreport.com to check out your credit score. This site is run by the three major credit reporting companies: Equifax, TransUnion and Experian. You can only get one free credit report a year from each of the companies. (Experts request that you AVOID freecreditreport.com despite their many advertisements. These companies listed above really do offer free credit reports, and are the trusted sources.)
Pay your bills on time! This is one of the easiest things you can do to maintain a good credit score. It’s a no-brainer. Beyond that, letting bills go beyond 30 days late will make your score even worse, so if you pay a late bill make sure it is within 30 days. But, obviously, on time is better than good.
It’s best not to borrow more than 75% on any line of credit. You may be able to work with companies to raise your credit limit, but it’s best not to meet that credit limit. You’ll want a good balance between debt and available credit — you don’t want to appear maxed-out.
Make sure you stay on top of student loans. This is possibly the highest kind of debt for young home buyers, and you’ll want to keep it under control.
Also, if you are a young buyer, you may want to consider using your parents’ home as your permanent address. If collections lose track of you while you’re floating around, this could hurt your score. You want to have a clear set of records and avoid missing any random payments.
Due to HYPA rules, medical collections cannot specify details about medical bills and payments. Sharon explained that it’s important for you to keep track of these specifics — if you have a line item that just says “medical” you’ll want to be able to document those charges. (You won’t have to jeopardize your medical privacy to do this, just keep track of when, where, who, etc.)
If you have a long-standing, healthy credit card that you no longer use, keep it anyway! Part of your credit score has to do with length of credit. And again, you want a good balance between debt and available credit.
Don’t open extra cards just to help your score. Doing this is likely to lower it. You will be showing that you need more credit by applying for new cards.\
- Paying down your debt is better than just moving it around, although some sources say you should move some debt from an account that is near its limit to one that is less precarious. Use your judgement on this, or ask for advice.
- When you study your credit report, make sure you try to reconcile any errors — payments that were recorded as late that you paid on time or any fraud recorded on your account. (Fraud is worst-case scenario! Hopefully you’re not likely to find any of this on your report, but this is why you should check.)
Just be careful where you go for help with your credit! The best source is your lender or local bank. If you read or hear a suggestion that sounds too easy or too good to be true, it might be.
Where to find your credit report:
https://www.annualcreditreport.com/cra/index.jsp
More info:
http://www.federalreserve.gov/pubs/creditscore/default.htm
http://www.myfico.com/CreditEducation/ImproveYourSCore.aspx
http://creditpro.wordpress.com/2007/02/05/top-7-credit-score-secrets/
http://www.bankrate.com/brm/news/credit-scoring/20040128a1.asp
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