When I was in high school, my parents and teachers continually preached to me about the importance of having good SAT scores. They told me that a good score would give me access to certain types of colleges. As an adult, there is another score that can give us access as well, not access to college, but access to wealth; that score is our credit score.
I am amazed that despite endless publicity, many people still don’t understand why a credit score is important—much less how to make it better. Only one in eight understand that a good credit score will help qualify him for better rates on mortgages, car loans and such, according to a recent survey. A full 40 percent don’t understand that something as simple as paying off a large credit card balance will help improve a credit score. A lot of people simply don’t understand that they are paying more than they need because of a mediocre credit score.
The Basic Score
A credit score is a three-digit number that summarizes all the information in your credit files. The goal of the credit score is to tell a lender how likely you are to pay your debts. What’s a good score? The range of possible scores runs from about 300 to 850. According to Experian, the average score is 677. If you’re over 720, you’re going to get the best rates and terms from most lenders. If you’re below 620 you are considered high-risk or sub-prime. People with the higher scores often can obtain mortgages, credit cards, loans, and insurance at more favorable rates. Conversely, the lower the score, the less favorable the terms will be in any offer that is made.
The Bible and Credit
“A good name is to be more desired than great wealth, favor is better than silver and gold.” (Proverbs 22:1). It takes a long time to build up a good financial reputation but very little time to destroy it. To a lender, our credit score says a lot about what kind of financial character we have. Do you have a good name or a bad name as it relates to our creditors? Fairly or unfairly, people sometimes judge us based on our credit score.
Tips for Improving Your Credit Score:
1. Check your credit report
A lot of people have lower scores than need be because there are errors on their reports or accounts that aren’t theirs. One of the fastest ways to improve your score is to challenge any errors and get them out of your report. If you have errors on your report, make a photocopy of the report, highlight the errors, and send it back to the bureau that issued the report, along with a letter of explanation. If you do not receive a response from the bureau within 30 days, the errors should be dropped from your record (Section 611d of the Fair Credit Reporting Act of 1970). If you discover duplicate information on your report, photocopy the report and highlight any duplication. Send the highlighted copy with a letter stating that you want the inquiry and the account information merged. You should receive a response within 30 days.
2. Pay bills promptly
If you’re late on a single payment, it can potentially knock 100 points off your score, so please pay your bills on time. Sometimes being four or five days late may not hurt as most creditors won’t report you as late until you’re at least 30 days overdue. Don’t take any chances though. If you can’t pay on time, contact your creditors and work out a plan so you don’t hurt your score.
3. Pay down your debt
The formula measures the difference between how much credit you have available and how much you use. The wider you can keep that gap, the better off you are. A lot of people think this doesn’t apply if they pay off in full every month, but you can do damage to your credit score just by running up your balance. If you have a $10,000 limit and you’re regularly charging $9,500, that’s going to hurt your score.
4. Don’t apply for new credit
In other words, stop accepting every credit card offer that comes your way. Retailers sometimes offer a 10 percent discount to a shopper who applies for instant credit, however, your score can be damaged if you apply for new credit frequently.
5. Keep old accounts open
I am always reluctant to recommend this because a lot of people simply can’t resist the temptation to charge their old cards back up, even after they pay them off. If you are one of those people who struggle with using credit cards then you need to close out your accounts regardless of how old they are. However, I must tell you that if you close an old account, it lowers the total credit available to you. It also makes your existing balances look higher, and may hurt your score. If you close out very old accounts, you could also get hurt by shortening the length of time covered by your credit reports.
6. Getting your credit report
If you have not been denied credit but desire to have a copy of your credit report, you can request a copy for a fee. The charges vary from state to state but generally a credit reporting agency will charge a fee of $5 to $20 for a copy of a credit report. You are entitled to one free report per year if you can prove that you are unemployed and plan to look for a job within 60 days, if you are on welfare, or if your report is inaccurate because of fraud.
