Be smarter about your credit score

October 9, 2012 

With the downturn in the economy during the past several years, Americans in general seem to have become more informed about credit scores, but most still don't know enough about the risks associated with having a low score and those outfits alleging to offer "credit repair" services.

Most consumers seem to know these basic facts about credit scores. Mortgage lenders and credit card issuers use credit scores. Other service providers like landlords, home insurers, and cell phone companies also use credit scores to determine your eligibility for services.

Missed payments, personal bankruptcy, and high credit card balances influence credit scores.

There are three main credit bureaus (Experian, Equifax, and TransUnion) that collect the information frequently used to calculate credit scores.

Consumers can have more than one generic credit score, depending on the scoring model used.

Making all loan payments on time, keeping credit card balances under 25 percent of credit limits, and not opening several credit card accounts at once can help raise a low score or maintain a high one.

It is very important for consumers to check the accuracy of their credit reports at the three main credit bureaus.

To test your credit report knowledge, go to http://www.creditscorequiz.org.

But some consumers still incorrectly believe that credit scores are influenced by their age, marital status or ethnic origin. And approximately half of our population is under the false impression that credit repair companies are typically helpful in fixing errors and improving scores, even though such firms often charge high prices to perform services that consumers could do on their own.

A typical credit score will range between 300 and 850 points. Although all lenders make decisions based on the particulars of the borrower's situation, in generally, the higher your score, the lower the perceived risk to the lender, and the more attractive the interest rate you will be offered on your loan.

Tips for raising or maintaining a higher credit score include paying your accounts on time and keeping your balances low. Lenders are looking for a proven track record of making timely payments. Payment history determines about 35 percent of your credit score.

Be careful about the available credit you use. About 30 percent of your score is determined by what the industry refers to as your "utilization ratio," which is the amount you owe in relation to the amount of credit available to you. If that percentage is more than 50 percent, your score will be lower.

Hold on to older, unused accounts. The longer an account has been open and managed successfully, the higher your score will be.

Maintain a diversified credit mix. If you hold an auto loan, a home mortgage, and credit cards that are well managed, you will generally have a higher credit score than someone whose credit consists mainly of finance companies.

For detailed information about what comprises a credit score and how they are used, including how to get one for yourself, go to http://www.consumerfed.org/elements/www.consumerfed.org/file/finance/yourcreditscore.pdf

Karin Grablin, financial adviser with SRQ Wealth Management, 1819 Main St., Suite 905, Sarasota, can be reached at 941-556-9004 or karin@srqwealth.com.

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