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5 Things To Know To Improve Your Credit Score
Ignore it at your peril. A high credit score can help people get lower rates for loans on cars and credit cards, and can save them tens of thousands of dollars over a lifetime for those who qualify for a mortgage, experts say, and yet people still make major mistakes when it comes to understanding their credit scores.
"Low credit scores can deny one access to credit or increase the costs of this credit by thousands of dollars," says Stephen Brobeck, executive director of the Consumer Federation of America, a consumer advocacy group.
The primary way of maintaining a high credit score is paying off bills on time. Only 53% of Generation Xers say they regularly pay off credit card balances in full, less than millennials (57%) and boomers (66%), according to a recent report by Financial Finesse, a financial education company. "Since Generation X struggles the most with debt and paying bills on time, they may be particularly concerned about the impact of debt and late payments on their credit score," the report found.
While there has been an improvement this year over last year in people's knowledge of how credit scores operate, here are five areas that — according to the report — require room for improvement:
Low credit scores mean high loan repayments
Many Americans are not aware of how a low credit score can hit their pocketbook. The survey cites the impact of an auto loan. Only 20% of Americans know that low credit scores are likely to increase the finance charges on a $20,000, 60-month car loan by more than $5,000, up from 16% a year ago, according to the results of a survey by 1,000 people carried out for the CFA and VantageScore Solutions, which operates a credit score model. And 41% incorrectly think extra charges would be less than $3,000.
There is more than one credit score to track
One-third of people don't realize that they have more than one credit score. The country's three main credit bureaus — Experian, Equifax, and TransUnion — collect the information on which credit scores are frequently based. This is particularly important as some lenders may be unwilling to accept just one credit score, if they suspect that it doesn't represent the full picture. And scores can vary. Last year, Fair Isaac Corp. (FICO) announced a change in its scoring, putting less focus on medical-related debts.
700 is the magic number for most borrowers
Some 14% of respondents don't realize that 700 is actually a good credit score. A score between 661 to 780 is considered good credit and between 781 and 850 is regarded as excellent credit, according to financial website Credit.com. The site rates fair credit as between 601 and 660, poor credit between 501 and 600 and bad credit as anything below 500. But different lenders may have different criteria when it comes to loaning money, and may approve borrowers with a credit score of below 700.
Transferring balances won't help your score
Only 34% of people know that making payments on time, keeping credit card balances low or paid off, and not opening several card accounts at the same time helps raise a low credit score or maintain a high one. It may not always be wise to open another card with a lower temporary interest rate and transfer the balance from one credit card to the new card. Brobeck advises paying down debt rather than just moving it around, as well as not opening many new accounts at the same time.
Check your score regularly to avoid disappointment
While most people realize that it's important to check their credit scores with one of the three main credit bureaus, 18% of people are still not aware that they should do that, the survey found. It's free to check your credit score and it also helps to build a credit score over time. Rather than wait until you need a loan in an emergency or until you want to get a mortgage, it's important to check your score regularly so you can detect any identity fraud on a credit card or any mistakes by the credit bureau.
By Quentin Fottrell, MarketWatch
With more than a decade of experience, LaDawn enjoys educating first time home buyers, working with the 55+ community, relocation clients, sellers who want to downsize, step up purchase or anything in....