Wednesday, December 19, 2007

Protect and Improve Your Credit Score

Thanks to the Federal Reserve, rates have dropped below 6% a few times over the past month (today included). That's the good news. The bad news is that people whose credit score is below 680 will pay higher rates on all conventional loans. Those with scores below 620 will be paying 2% higher than the going rate.

If you're planning to buy a house next year or think you might want or need to refinance to take advantage of the nice low rates, make sure you optimize your chances of having a high credit score. In addition to the famed "pay your bills on time" and "don't file for bankruptcy" there are additional steps you can take to protect or raise your score.

1. Don't have more (or less) than about 2 or 3 credit cards. I have personally seen this make a difference. My husband and I have had all joint credit accounts for ten years, except I have a Macy's card (I have no choice, of course, as Macy's often offers an addition 10-20% off if you use their card!), and my credit score is always 10-20 points higher than his.

2. Don't max out any of your credit cards. Or better yet, pay them in full each billing cycle.

3. Do use your credit cards regularly, so that you have current credit ratings. If you have a card you keep for emergencies that you never use, have Netflix (or some other recurring bill) charge your card and then pay it off every month.

4. Don't take out any new loans right before you apply for a home loan - brand new debt temporarily adversely affects your score. In other words if you plan to buy a car and a house, buy the house first. ANYONE will give you a car loan -- even if you filed bankruptcy yesterday. Home loans are a little trickier, so get that established first.

5. If you have collections to pay or want to pay off and close some accounts (make sure you keep AT LEAST 3 accounts open), do it well in advance of applying for your loan, as recently closed accounts adversely affects your score.

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