Your Credit Score and Why It Matters

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Why won’t lenders help you improve your credit rating? Because It is not at all in the lenders best interest to tell you how to raise your credit score. The loan rates they typically advertise are for people with FICO scores of over 720. Lower credit scores are charged a premium of up to 6% higher. Once you raise your score they can no longer charge you high interest rates.  They make so much more money on people with lower FICO scores, there is no incentive for them to share any information with you. You have seen all these auto ads claiming 0% financing, etc. The truth is that almost no one qualifies for that rate and if you did, the dealer and finance company would not be happy in the least

Do you realize that a 1% difference in interest rates means a higher payment of $134 a month on a $200,000 home loan. You could save $1608 annually by lowering the interest rate by only 1%. Or you could save $4824 annually by lower the rate 3%.  That’s $144,000 over the life of the loan. This is why the banks will not assist you! Just think of how you could spend that extra money and why the lenders enjoy spending it instead!

The Credit Reporting Bureaus Don’t Like Helping You Either!

Over 90% of all credit reports contain errors. These errors can severely damage your rating. Fixing your credit score errors is costly for the credit bureaus. So they certainly don’t make it easy for consumers to make corrections.

Each item on your credit report must be proven or it cannot remain on the report. If the credit bureau cannot verify the item when it is investigated, it must be removed from your file whether or it’s accurate or not.

You have rights as a consumer, you need to know them. Following the below guidelines for long term credit score improvement. You can always choose to work with a legitimate credit repair service provider too. 

Pay your bills on time – Delinquent payments and collections can have a very negative impact on your  score.

If you have missed payments, get current and stay current – The longer you pay your bills on time, the higher your  score will become

Be aware that paying off a collection account will not always remove it from your credit report – It will stay on your report for seven years, if you don’t take aggressive action. 

Keep balances low on credit cards and other “revolving credit” –  High outstanding debt can seriously affect a score.

Pay off debt rather than moving it around – The most effective way over time to improve your score in this area is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your credit rating.

Don’t close unused credit cards as a short-term strategy to raise your score – A credit card that has been closed appears on your credit report for 7 years and the  score can not distinguish between you closing it or your creditor.

Don’t open a number of new credit cards that you don’t need, just to increase your available credit – This approach could backfire and actually lower your  score.

If you have been managing credit for a short time, don’t open a lot of new accounts too rapidly – New accounts will lower your average account age, which will have a larger effect on your score if you don’t have a lot of other credit information. Also, rapid account buildup can look risky if you are a new credit user

Do your rate shopping for a given loan within a focused period of time –  scores can distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur.

Re-establish your credit history if you have had problems –  Opening new accounts responsibly and paying them off on time will raise your score in the long term.

Note that it’s OK to request and check your own credit report – This won’t affect your score, as long as you order your credit report directly from the credit reporting agency or through an organization authorized to provide credit reports to consumers. Beware of websites that are not affiliated with the credit bureaus, as this will lower your score.

Apply for and open new credit accounts only as needed – Don’t open accounts just to have a better credit mix — it probably won’t raise your score.

Note that closing an account doesn’t make it go away – A closed account will still show up on your credit report, and may be considered by the score.

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