You Need Higher Credit Scores than Ever
John Ulzheimer
Credit.com
hree years ago, a credit score of 580 was
good enough for you to earn approval for a wide range of
attractive mortgages and other loans. Today, borrowers need
scores well into the 700s (out of 850) to obtain similar
terms.
Achieving these top-tier credit scores is tough enough when the
system is fair. Often it isn’t. Harmful practices by retailers and
credit-reporting agencies can keep you from earning your rightful
credit score. How to protect your
score...
Decline all offers from stores
that say, “No payments until... ”
Reason: Retailers typically team up
with third-party finance companies to make these offers. They are
the same finance companies that make high-interest-rate loans to
high-risk borrowers. If one of these lenders is listed on your
credit report, the scoring models that calculate your credit score
might lower your score -- even if all you did was accept an offer
to delay payments on a flat-screen television or a coffee
table.
Do not apply for more than two
or three credit cards, including store cards, within any
12-month span.
Reason: Each credit card you apply
for, including store cards, posts a credit “inquiry” on your credit
report. Make more than a few inquiries within a few months -- which
often happens around the holidays when consumers take advantage of
special card offers -- and your credit score might fall. These
inquiries will continue to affect your credit score for 12
months.
Before you agree to become a
customer, ask small lenders, cellular service providers and
utilities whether they report on-time payment of bills to
credit bureaus. If you have a choice of
which company or lender to use, lean toward those that do
report, so your responsible use of this credit counts in your
favor.
Reason: With many credit card issuers,
even when you act responsibly, you are not rewarded -- yet when you
make even a small mistake, you are punished. Because many utility
companies, cell phone service providers and small lenders, such as
credit unions, don’t bother to report on-time payments to any of
the credit bureaus, they deprive their customers of an opportunity
to improve their credit scores. But, if these customers default or
their bills are turned over to a collection agency,
that isreported,
generally through the collection agency assigned to recover
the debt.
Check your credit report for
mistakes six months before applying for an important
loan.
Reason: If you find an error on your
credit report that is lowering your score, you can contact the
credit bureau and correct the problem in time. If you don’t check,
when you apply for the loan, you may discover that your credit
score is unfairly low.
No matter the mistake, it takes up to 30 days for credit bureaus
to update credit reports. Best:
Check your credit report with all three
credit-reporting bureaus -- free -- once every 12 months
at www.annualcreditreport.com. You
can also purchase your credit score for $7.95 when you get your
free report.
When a customer service rep
agrees that a late or missed payment notice was in error, ask
to be sent confirmation to this effect on company
letterhead.This statement should note your name,
account number and the date of the bill in question. If the
erroneous late or missed payment later appears on your credit
report, you can send copies of this statement directly to the
credit bureaus.
Reason: Even when a lender agrees that
it was wrong to accuse you of a late or missed payment, the lender
may still report the problem to a credit-reporting agency. The
customer service reps who correct the billing mistakes might lack
access to the automated system that reports late and missed
payments to credit bureaus.
DON’T FORGET THESE BASIC WAYS
TO PROTECT YOUR SCORE
Use only a small amount of your
available credit. Your credit
score will suffer if you use more than 10% of your available
credit on a particular account or among all your accounts.
Vary your
credit. It’s important to your
score that you have many different types of credit, including
several of the following: Credit card, retail store card, gas
card, auto loan, home loan, student loan and personal
loan.
Do not close old
accounts. The older your
credit card accounts, the better for your credit
score.