The secret to creating a huge savings in your pocket begins with a small increase
in your credit score. With a score of at least 720, which is the national median,
you already qualify for the best interest rates. However, for those below that,
it is quite a different story. With scores of at least 720, the average interest rate
on a fixed 30-year mortgage is 5.3 percent. Lower that by 50 points and the
interest rate will be raised as much as 1.8 percent. Over the life of a 200,000
mortgage, that is an extra $85,511 of interest.
The good news is there is a lot you can do to boost your score, even if it’s
Don’t pay late, don’t go bankrupt, and you have your payment history covered.
However, if you do have a late payment on your credit report, you can try to:
Ask the creditor who reported the late payment to remove it. In business terms
this is known as a goodwill adjustment.
Plead with the creditor and be as pleasant as you can. Explain the situation
behind your payment error and tell them that it will never happen again.
Dispute the reporting of the late payment. You will need to write to the creditor
and demand evidence supporting the negative report. This item will stay on your
credit report, while it is in dispute, but won’t factor into your credit score. Some
people have used this trick, just before applying for a loan, to raise their credit
score. However, this is not fool proof.
If the creditor looks at the full report and notices the dispute, it is possible
that it will be refused until the dispute is resolved.
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Your credit use is an important factor to your credit score.
Consumers who use very little of their available credit are
rewarded with increases to their credit score.
Even if you pay off your credit card balances every month, never use more than
50 percent of your limit on any of your credit cards.
Maintaining your balances
at 30% can raise your
credit score by as much as 50 to 80 points.
Find out when your creditors report to the credit bureaus. It is normally the day
after your statement period ends. However, by
monitoring your credit report closely,
you will be able to know without a doubt. Pay the balance off before that date, in
order to temporarily raise your credit score. If available cash is a problem, the end
result can be achieved with a well-timed balance transfer. Transfer your balance to
a second credit card that won’t be reporting for a couple of weeks, just before the
first creditor reports. Then transfer the entire balance back to the first credit card,
after a zero balance has been report. Make sure that the timing is right and that you
get the balance transferred before the second creditor reports the balance to the credit
bureaus. One downside to this is that you may have to pay up to $50 per transfer,
depending on your credit card’s fees.
Some creditors report the high balance, instead of reporting your credit limit.
This “high balance” is the largest sum you have ever carried on the credit card.
This can cause your score to decrease. For example, if your credit limit is $10,000,
your current balance is $1000, and your high balance is $1500; your credit usage
calculates to 10 percent, which is a score booster.
However, based on high balance, the usage jumps to 66 percent and will hurt your
score terribly. If one of your creditors is indeed reporting the high balance, use only
that card for one month in order to raise that high balance.
In the long run, this will raise your credit score, however it will lower your score for a
Think twice before closing a credit card account that you seldom use, as this will
increase your overall credit usage ratio.
Older credit accounts are better for your score than new
lines of credit
If you have more than five credit cards, this is generally considered too many. Close
the newest accounts first, and use the older credit cards at least once a year to
increase your credit score. Unused accounts don’t count much toward your
Within a year of applying for a large loan, such as a mortgage, avoid
applying for smaller loans or credit cards, as they will bring down your score.
If a friend or family member is willing to add you as an authorized user on an older,
in good standing, credit card account, this account will appear on your own credit
report and raise your score.
Credit report inquiries can hurt your credit score. Every time you apply for credit, The credit score formula rewards those with a mix of different types of debt in
the lender will look at your credit, which creates an inquiry on your report.
Supplying your own copy of your report to the lender if you are just shopping around
for rate quotes. In the event that the creditors insist they must pull a report, then try
to do your entire rate shopping within a two-week period.
A quick influx of inquiries only counts as one.
their credit report. Rather than just having nothing but credit card debt, it is much
better to have a mortgage, car loan, and 3-5 credit cards, which are all in good
standing. Also, avoid loans from finance companies as they can bring down your
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