Translate this page

Credit scores affect loan approvals, interest rates


Friday, April 11th, 2014
Issue 15, Volume 18.
Jason Alderman
Special to the Valley News


One of the few positive outcomes of the 2008 financial crisis was that it helped shine a light on the importance of understanding and staying on top of your credit profile. Along with that heightened visibility, however, has come a great deal of confusion and misunderstanding – particularly around the all-important credit score.

"The consequences of not maintaining a sound credit score can be very costly," said Anthony Sprauve, senior consumer credit specialist at FICO. "A low score can bar you from getting a new loan, doom you to higher interest rates and even cost you a new job or apartment."

Five factors are used to determine your credit score: payment history (usually around 35 percent of your score), amount owed (30 percent), length of credit history (15 percent), newly opened credit accounts (10 percent), and types of credit used (10 percent).

Fortunately, if your credit score has taken a hit, you can initiate several actions that will begin improving it almost immediately. Just be aware that it can take many years to recover from events like bankruptcy or foreclosure.

First, find out where you currently stand by reviewing your credit reports from each major credit bureau (Equifax, Experian and TransUnion). Look for negative actions your creditors might have reported as well as errors and fraudulent activity, which you can challenge through the bureau’s dispute resolution process. You can order one free report per year from each bureau through the government-authorized site, www.AnnualCreditReport.com; otherwise you’ll pay a small fee.

You might also want to order your credit score. Lenders use credit scores to supplement their own selection criteria to determine whether you are a worthy credit risk. Several types are available, including FICO® Score, VantageScore (a competing model jointly created by Advertisement
Advertisement for Children's Lighthouse
[ Children's Lighthouse ]
Equifax, Experian and TransUnion) and proprietary credit scores from each of the three bureaus, among others. Scores typically cost from $15 to $20 each.

Note: You may see offers for free credit scores, but they’re usually tied to expensive ongoing credit-monitoring services you may or may not want. Read the contract carefully.

Here are a few tips for improving your credit history:

Always pay bills on time and catch up on missed payments.

Set up automatic payments for recurring bills and automatic minimum credit card payments if you often miss deadlines.

Sign up for text or email alerts telling you when your balance drops or payments are due.

Never exceed credit card limits.

Monitor your credit utilization ratio (the percentage of available credit you’re using). Try to keep your cumulative utilization ratio – and the ratios on individual cards or lines of credit – below 30 percent.

Transferring balances to a new card for a lower rate will slightly ding your credit score – although it won’t take long to recover. But be careful the transfer doesn’t increase your utilization ratio on the new card.

Make sure that card credit limits reported to the credit bureaus are accurate.

Don’t automatically close older, unused accounts; 15 percent of your score is based on credit history.

Each time you open a new account it slightly impacts your score, so avoid doing so in the months before a major purchase.

Pay off medical bills, as well as parking, traffic and even library fines. Once old, unpaid bills go into collection, they’ll appear on your credit report.

"Bottom line, don’t lose hope," said Sprauve. "The negative impact of past credit problems will gradually fade as recent good payment behavior begins to show up on your credit reports."

Jason Alderman directs Visa’s financial education programs.


 

0 comments


arrow Be the first to share your opinion on this article!
 

Add your Comment


Name

Images, Formatting, or HTML is not allowed : plain text only. You may post up to 5 website addresses within your comment.




Disclaimer

The Valley News has tightened its' policy regarding comments.
While we invite you to contribute your opinions and thoughts, we request that you refrain from using vulgar or obscene words and post only comments that directly pertain to the specific topic of the story or article.
Comments that are derogatory in nature have a high likelihood for editing or non-approval if they carry the possibility of being libelous.
The comment system is not intended as a forum for individuals or groups to air personal grievances against other individuals or groups.
Please, no advertising or trolling.
In posting a comment for consideration, users understand that their posts may be edited as necessary to meet system parameters, or the post may not be approved at all. By submitting a comment, you agree to all the rules and guidelines described here.
Most comments are approved or disregarded within one business day.

RSS FeedFacebookTwitter



Advertisement for SRCAR





Subscribe


Most Commented


Reach Local Customers



The Valley News The Valley News
760-723-7319 - 1588 S. Mission Rd. Suite 200, Fallbrook CA 92028
All contents copyright ©2014
About Us
Earthquake Information
Business Listings
Contact Us
Letter to the Editor
Report a website error
Sitemap
Online Digital Edition
RSS Feeds
Login