Many lenders have standard, set guidelines about dispensing the best terms on a note payable, and those guidelines almost always place a major emphasis on your credit score. If, for example, their best rates are offered to borrowers with scores of 710 or higher, and yours is a 706, those four points
If you're thinking about buying a house or a car, unless you have the means to buy them in cash, your credit score is a very important number. The interest rate you'll be assessed for the note payable will be determined, in large part, by this credit score number that's generated from the information in your credit report.
could transalte into several thousand dollars that you will pay in interest. According to www.myfico.com, the consumer home website of the Fair Isaac Corp., the group that created the FICO score (the most commonly used credit score), the interest rate difference between those two scores is approximately one whole percentage point. On a $165,000 30-year fixed rate mortgage, that half point could cost you more than $28,000 in interest charges.
It is important to keep this in the perspective that these are averages. Most lenders today practice tiered pricing, with interest rates steadily rising as credit scores go down. Each lender chooses its own "break points" between tiers. For example, one given lender may bump up the interest rate if a score falls below 706, while another lender doesn't charge higher rates until the score is 700 or below.
This highlights the importance of not only doing all you can to improve your score. This also underscores the importance of shopping thoroughly when looking for a mortgage. From the perspective of a mortgage broker, who can choose among a many lenders, there are no break points set in stone. Consumers should do what a good loan/mortgage broker does -- look for a lender that offers the best rate for a specified score.
However, lets get back to dealing with just your credit score. There are steps you can take to improve your credit score. The number of variables that play into an individual score make it impossible to say how much one particular action will increase a given score by a specified number of points, but there are some good guidelines to follow nonetheless.
Many financial analysts will maintain the all you need to have a good credit score is to take out credit only when you need it, take it out for things that are tangible and therefore represent some sort of value, and pay your bills on time. In few words, the key to a good credit score is timeliness and discipline. That is certainly sound advice, but these actions take a long time. And you could be in a situation where you are house hunting and you just need a few extra points on your credit score to bump you over the "break point" to the great rates.
A necessary starting point when wishing to improve your credit score pulling your credit report and your credit score to see where you stand. If your score is above a 720, The there is no reason to be concerned. Improving your score from a 720 to a 740 will have little impact on getting you better terms. There are several online services that offer free credit reports
The first thing to look for on your report are factors that could be decreasing your score. Look for errors in the report, such as accounts that do not belong to you, late payments that were actually paid on time, debts that were paid off that are shown as outstanding, or old debts that shouldn't be reported any longer (remember, with the exception of bankruptcies, negative credit strikes are supposed to be deleted after seven years, which can stay for as long as 10 years).
In addition to repairing errors, another expedient route to a better credit score is paying down balances on credit cards. Some experts say that over a period of 60 days, one can increase one's credit score by 20 points by paying down their outstanding credit debts. Considering the averages discussed earlier, this difference could save you thousands of dollars in interest assessment
Contrary to popular belief, the closing of accounts actually does not help to improve your credit score. This is because one assessment that contributes to your credit score is the ratio of available credit to the amount of debt. When one credit account is paid off, it is not wise to close it, as it will serve to decrease you ratio, thereby decreasing your credit score. Leave settled accounts open, at least until you have attained the big mortgage or other loan that you need.
The length of your credit history is another factor in your score. The longer your credit history, the better your credit score. This, of course, hardly seems fair, even age descrimiation, but it is a reality. However, this can be manipulated. Protect your perceived credit longevity by keeping your highschool or college stundent credit card accounts open. Usually the interest rates and credit limits on these card are rediculous to say the least, but no one says that you have to use them, just keep them open.
Yet another useful strategy for improving your credit score is to transfer balances from a card that's close to being maxed out to other cards to even out your usage, experts say. Likewise, when using cards spread out your charges between a few cards, thus keeping them even
If you're in the midst of trying to qualify for a mortgage and need an ultra-quick boost of your credit score, you can speed the process along with rapid rescoring. This does not work for legitimate negative strikes on your credit report. But the process of rapid rescoring can help increase your score within a few days by correcting errors or paying off account balances. This is not
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something you can do on your own. In order to obtain a rapid rescoring, you need a lender who is a customer of a rapid rescoring service. The service costs in the general viscinity of $50 for every account on your credit report that needs to be addressed, but it is worth it, as it could save you thousands of dollars on the interest of your loan. If a consumer can find a lender who is a customer of a rapid rescoring service, new information can be posted within.
Some nifty online tools are available where people can to find out which strategies could have the most impact on their credit score. Various credit score sites offer a credit score simulator when you purchase your credit score. It will show you how paying down your different account balances, or not paying any of them would affect your score.
Many people feel powerless about their credit score. They feel that it is what it is, and they made their bed and now have to lie in it. However, the reality is that following a few simple techniques can serve to significantly raise your credit score, even in the eleventh hour.
References:
http://www.bankrate.com
Article, "Tips for boosting your credit score"
Author not listed
http://money.cnn.com
Article, "If you want to improve your score, make sure your score is the best it can be"
Author, Jeane Sahadi
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