Credit Reports and Scores
Your credit score (FICO score) determines whether you can get credit. And your score may be high enough to get credit but not high enough to get a decent interest rate—whether you’re looking for a mortgage, a car loan, or some other type of credit. Without good scores, your application to rent an apartment may be turned down. Your scores can affect your car insurance premiums and even getting a job.
Often, only husbands have credit in their names and therefore wives do not establish good credit. This is a mistake! If a husband dies before his wife, she won’t have a solid credit score. Bev and I solved this problem by each securing a credit card in our name that we pay on time and in full every month. When we receive the credit card statements, we meet to review them so our communication remains intact.
A credit score is a number designed to help lenders and others measure your likelihood of making payments on time. The FICO score ranges from 300-850, with the average score around 680. Higher scores are better. FICO scores above 700 indicate a good credit risk, while scores below 600 indicate a poor risk.
A low score can lead to much higher interest rates. For example, if you apply for a 30-year home mortgage and your credit score is too low, you could pay as much as three percent more. On a $200,000 mortgage, that three percent difference will cost you $400 per month. Over the life of the loan it adds up to $144,000!
The primary things that will harm your credit score are late payments or non-payments of bills or debts, bankruptcy, foreclosure, repossession, bills or loans sent to collection. To improve your score, the two most important actions you can take are to pay your bills on time and reduce your total debt. Once you start doing this, your score will begin to improve in about three months. Look at the factors affecting your score.
Late or missed payments, foreclosures, or repossessions remain part of your credit report for seven years. You’ll have to wait ten years for a bankruptcy to be removed, and fifteen years for a tax lien. Even though these remain on your credit report, over time they have less impact if you pay your bills on time and reduce your debt.
Everyone should get a copy of their credit report once a year. Review it to make sure there are no mistakes or that you haven’t been the victim of identity theft. You can order a free copy of your credit report once every twelve months.
The free copy of your credit report does not contain your credit score. Any of the three main credit agencies will sell you your score.
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