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Consumers Beware: “Credit Killers”
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For more information contact:
Tanisha Warner (713) 394-3202 |
Release Date: August 29, 2007 |
More and more consumers are depending on their good credit to make ends meet as budgets get tighter as a result of higher energy costs, minimum payments and interest rates. However, your credit score may be affecting you more than you think. For example, landlords, insurance companies and employers also perform credit checks as a way to evaluate your personal financial character.
Credit scores range from 300 to 850 and a score over 700 is generally considered by most creditors to be “good.” Unfortunately, reaching that number is not quite as simple as paying bills on time and as agreed. While payment history does account for 30 percent of your FICO score, there are several other factors that contribute. With this in mind, the experts at Money Management International (MMI) would like to point out a few common credit mistakes and ways to avoid their damage:
Not checking your credit report regularly. Request a free copy of your credit report each year from www.annualcreditreport.com. Familiarize yourself with your credit history and review it for accuracy. Knowing where you stand will help give you the tools needed to increase your score.
Having too many inquires. Generally, six or more inquiries within a six-month period of time will scare a lender. Applying for loans on the Internet and transferring balances on credit cards can also have negative consequences. However, most credit scores are not affected by multiple inquiries from auto and mortgage lenders within a short period of time.
Staying out of debt. Having no credit history is nearly as bad as having poor credit history. From a creditor’s perspective, if you have stayed out of debt your whole life, they have no way to judge how you would handle a loan. Maintaining several types of accounts proves that you can handle the responsibility. According to www.myfico.com, your credit mix (credit cards, store charge cards, loans, etc.) accounts for 10 percent of your score.
Making late payments. There are several negative consequences to making late payments and the “Universal Default” clause is one of them. Under this clause a creditor, who you have always paid on time, may raise your interest rate if you are late on other credit obligations.
Closing old accounts. It may seem wise to close old, unused accounts, but doing so could shorten the length of your credit history and harm your score. Credit history makes up a whopping 15 percent of your score. If you choose to keep old accounts open, be sure to keep tabs on them regularly to be certain they are not used fraudulently.
“Finally, when trying to improve your credit score, be persistent and patient,” said Cate Williams, vice president of financial literacy for MMI. “Scores are continually updated and may move several points each month. Whether your score goes up or down is entirely up to you.”
According to Fair Isaac & Co., a person with a FICO score of 659 can qualify for a 6.67 percent interest rate on a 30-year fixed rate mortgage. However, a person with a score only one point higher can obtain that same loan at the much lower rate of 6.62 percent.
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Money Management International, is a non-profit community service organization that provides confidential financial guidance, counseling and debt management assistance to consumers. MMI helps consumers trim their expenses, develop a workable budget, lower their debt payments and repay debts. Services are available by phone. To visit with an MMI counselor, call toll-free 1-800-762-2271- 24 hours a day, 7 days a week. Spanish speaking counselors are available. Consumers can also learn more by visiting the MMI home page at www.moneymanagement.org.
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