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Before making
a major purchase such as a home or automobile, there are two
reports you should check—your credit report and your credit
score.
While most US
consumers are familiar with their credit report, some consumers
may not be as familiar with their credit score, also known
as their FICO score. Your credit score
includes information about your past credit history, bill
paying, number
of credit accounts and outstanding debt.
These factors are then compiled into a statistical system
that creditors use to determine your credit worthiness. This
system awards points for each factor and helps predict how
likely you are to repay a debt. The points are added to create
your credit score.
Credit scoring models are complex, but cannot
include certain characteristics like race, sex, national origin,
religion, or marital status. While age can be a factor, a
scoring system must give equal treatment to elderly applicants.
Your credit score may also include information from a credit
application such as occupation, length of employment and whether
you own or rent your home.
Credit scores range from 300-850 with higher
scores going to those individuals who are considered better
credit risks. The national median credit score is 723. If
your score is less than 620, obtaining loans and new credit
may prove difficult.
To improve your credit score, consider the
following:
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Pay your bills on time. Payment history
makes up 35-percent of your total credit score. Late payments
will negatively impact your score.
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To avoid worrying about late payments,
you might consider choosing direct debit from your checking
account to pay mortgage, auto, utilities and other monthly
bills.
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Pay down your debts and try not to add
new charges to your credit cards. The more debt you pay
off, the better your credit score.
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If you intend to make a major purchase
within the next year, start paying off your debt now.
While too much credit can negatively impact
your credit score, too little credit can have the same impact.
You want enough credit history to prove that you are a responsible
credit risk.
Don’t worry about those dozens of credit
card offers you receive in the mail each month. While they
are very annoying, they will not hurt your credit score, unless
you apply for all of them and incur new debt.
It is a good idea to review your credit
report at least once a year. By September 1, all US consumers
can obtain one free credit report each year. To order your
free annual report, click on
www.annualcreditreport.com
or call 1.877.322.8228. You will need to provide your name,
address, Social Security number and date of birth. A
word of caution. If you receive an e-mail or pop-up
ad claiming it’s from www.annualcreditreport.com
or any of the three nationwide consumer reporting companies
or if you receive a phone call offering you a free credit
report, do not respond. It is probably a scam. Make sure you
initiate the contact.
You will still have to pay
for your credit score and the standard report will cost $14.95. To order your credit score, log on to www.myfico.com.
CONSUMER TIPS is provided as a public
service by the Missouri Independent Bankers Association
AND
Community Bank of the Ozarks
P.O. Box 43
Sunrise Beach, MO 65079
(573) 374-5245
1-800-927-4314
www.cbobanker.com
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