Theoretically, You have More control over the amount and terms of debt than you do over how the markets impact the value of your investments. Do you have as much control as you would like? Are the low interest rates you’ve been reading about out of reach because your credit score isn’t high enough? It’s NEVER too late to get your debt under control and take steps to increase your credit score.
WHY CREDIT SCORES MATTER
The so called FICO score is the most widely accepted measure of credit worthiness; it is a quick gauge of your ability to repay debt. A high credit score can not only help you secure a lower interest rate when you need to borrow; it can even reduce your insurance premiums and some employers consider it when deciding whether or not to hire you for a job.
In general companies using the FICO score believe people with higher scores tend to act more responsibly in other ares of their lives as well. Conversely, a lower score makes it harder to get a loan, land a job or qulify for the best terms on a wide variety of consumer contracts.
FICO scores range from 300 to 850. Only a small percentage of consumers have scores over 800. The median score is roughly 725 and a score of 760 or higher usually gets you the best deals in interest rates etc. Income and assets (which are NOT included in the credit score formula) can also affect the amount and terms of a loan. However depending on the lender’s standards a good job, high net worth may NOT be Enough to OVERCOME a POOR credit score.
A higher credit score will give you leverage in negotiating the best terms. MyFICO.com estimates that someone with a FICO score of at least 720 who takes out a 36 month $20,000 car loan will pay a 6.47% annual percentage rate (APR). In contrast with someone with a score between 500 and 589 will pay 18.403%.
(Source: MYFICO data as of July 14,2009. Interest rates are natioanl averages).
IMPROVING YOUR CREDIT SCORE
Five factors have an impact on your FICO score: payment history,leght of credit history, credit use, frequency of new credit requests and typres of credit. see previous article explaining what you can do to increase your credit score.
CHECK YOUR CREDIT HISTORY
The three main credit reporting agencies – Experian, Equifax and Transunion – are each required to provide consumers with a FREE copy of their credit report every 12 months.
It’s a good idea to request a copy from one of the three agencies every four months on a rotating basis.
To do so go to http://www.annualcreditreport.com/
As you check out your credit reports, look for errors (such as accounts you never heard of or closed long ago, or late payments that were actually paid on time) and follow instructions for correcting mistakes.
THE BOTTOM LINE – BORROW SMART
For most people, some level of debt is a necessity. When you need to borrow, take appropriate steps so YOU are the one who is In Charge of the terms and conditions – not the lender.
The material here is provided for general inforamtion purposes only.