Credit scores go up, credit scores go down
Evon Yett thought she knew how to keep a good credit score: “Don’t overspend and pay your bills,” she said.
But when Yett, 53, of Wilmington, Del., checked her score a year ago when trying to buy a town house, she discovered a disappointing 547.
“It’s not as high as it should be,” she says.
Although most Americans know their credit score is important, a lot of people aren’t quite sure how it’s derived or how to improve it.
Yett got the credit score basics right: Keep debt low, pay bills on time.
But it isn’t always that simple, say credit counselors, especially when trying to repair damaged credit.
In fact, some actions people take to improve their credit scores actually make things worse.
Known as a FICO score because it is calculated using a formula devised by Minneapolis-based Fair Isaac Corp., your credit score is a number between 300 and 850 that is meant to show lenders how well you manage credit.
Lenders look for scores above 700 and become wary when they drop below 600.
The nation’s three credit bureaus, Equifax, Experian, and TransUnion, figure scores for about 210 million Americans based on information that more than 30,000 banks, department stores, mortgage companies and other lenders submit every month.
“A lot of people don’t realize how important your FICO score is,” says Mary Rammel, a senior credit counselor with the Consumer Credit Counseling Service of Maryland and Delaware.
Not only can it affect the interest rate you get when buying a home or car, it can also affect your auto and home insurance rates, she said.
Employers may even check your credit score before they hire you, Rammel says.
Lenders, by and large, are interested only in the score, not the numbers behind it, said Norm Magnuson, spokesman for the credit bureaus’ trade group, the Consumer Data Industry Association.
“They don’t even see the credit report,” he said.
The agencies calculate your score based on a complex formula that factors in payment history, credit history, outstanding debt, the types of credit you use and the amount of new credit.
The scores do not take age, sex, race, occupation, salary, marital status or national origin into account.
The largest portion of your score – nearly 35 percent – is based on payment history.
In other words, have you paid your bills regularly and on time?
This part of the score is like your personal reputation, says Fair Isaac spokesman Craig Watts.
“It takes years to build it and one night to trash it,” he said.
“Lenders like to see no more than one-third on any one credit obligation,” says Magnuson.
One mistake people make is closing out credit card accounts right before applying for a loan, thinking it will help their score, says Denise Freeman, a housing counselor at the National Council on Agriculture, Life, and Labor Research Inc.
Credit scores go up, credit scores go down (The Fort Collins Coloradoan)
Evon Yett thought she knew how to keep a good credit score: “Don’t overspend and pay your bills,” she said.
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