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Many
Americans are feeling trapped in the current economic
climate, facing foreclosure on their homes and living on
credit cards to make it from month to month. Now, more
than ever, it is important to maintain a high credit
score and know what is in your personal credit report.
You first need to understand that,
under federal law, you are entitled to a free credit
report from each of the three national credit reporting
companies each year. To get started, select a date on
the calendar. Let’s start today. Go to your computer
and log on to
www.annualcreditreport.com. Be sure to order your
report from this website. Other sites will charge you a
fee. Using the date you select, you will be able to
receive another free report each year by logging on and
requesting your credit report. You may also call
877.322.8228 to request the form.
While you’re checking on your credit
report, you will also have an opportunity to check your
credit score. This report will cost you a nominal fee,
but it is important to know your score. Each year on
your selected date, you will be able to order your free
credit report and purchase a copy of your credit score.
What is a
credit score?
The three national credit reporting
bureaus — Experian, Equifax and TransUnion — keep
reports based on information they receive from companies
who have extended credit to you. These reports include
information such as your payment history, the length of
your credit history, and the types of credit you have
and the amounts you owe. From that information, they
derive your credit score, which can range anywhere from
300 to a perfect 850.
Keep in mind that the higher your
score, the better interest rates you’ll receive. For
example, consumers with a credit score above 700
generally receive lower interest rates and those with a
credit score of 760 or higher will receive the lowest
interest rates. The median credit score is 723.
Consumers with the highest credit scores usually pose a
lower risk as a potential borrower. If you’re thinking
about buying a new car or purchasing a new home, your
3-digit credit score will in large part determine your
interest rate.
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How is your
credit score calculated?
According to one financial planning
expert, your credit score is calculated using this
formula:
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10% is based on the types of
credit in use, including the number of accounts and
the mix of those accounts.
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35% is based on your payment
history. Do you pay your bills on time? Do you
have any bankruptcies, judgment liens or
foreclosures on your record?
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30% is based on the amounts owed
on available credit cards and installment loans.
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15% is based on the length of
your credit history.
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10% is based on the number of new
credit accounts opened recently.
How can you improve your credit
score?
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Pay your bills on time. If you
find it difficult to make time to sit down and pay
your bills on a regular basis, consider setting up
an automatic payment system through your bank, so
you’re never late. Of course, be sure you have
enough money in your account to avoid overdrafts.
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Be sure you don’t have too much
credit. Too many credit cards and installment
accounts can negatively affect your credit score.
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Don’t max out your credit cards
and keep balances on your credit cards low. Experts
suggest you keep your debt ratio on your credit
cards under 50%. If you have a $5000 limit, don’t
carry a balance more than $2500.
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Don’t open a lot of credit cards
you don’t need.
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Pay down those credit cards with
the highest interest rates first.
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Carefully review your credit
report and correct any errors immediately.
Credit is a good thing, but we all
know what they say about too much of a good thing. Use
credit responsibly and you’ll find your lender will
offer you the lowest interest rate when you go to
purchase that new home or automobile.
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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