What Is a Good Credit Score and How You Can Save Money by Having One

Published: 30th March 2009
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If you're planning to apply for a new credit card or a loan, the amount of interest as well as the payment terms you will get will depend on how high or low your credit score is.

Let's look at an example. Let's say you're from Oregon and would like to apply for a 30-year fixed mortgage to buy a house. If your credit score is 764, you'll pay an APR of 4.636% and a monthly amortization of $1,544. If your credit score is 720, you'll be paying an APR of 4.858% and a monthly payment of $1,585.

If your credit score is 680, your APR will be 5.250% and your monthly payment will be $1,657. Now if your score is 636, your APR will be 6.227% while your monthly payment will be $1,843.

As your credit score decreases, your annual percentage rate increases, and so does the amount you'll have to pay each month. It is important to know what affects your credit score and how to increase your rating.

Factors affecting your credit score:

  • Late payments, bankruptcies, delinquencies, collection accounts -- Lenders hesitate to grant credit to people who have shown habitual delinquencies in paying off their due bills. Bankruptcies and collection accounts show that the person does not take his payables seriously, and did not bother to do something before the account was turned over to a collection agency.

  • High outstanding debt -- Multiple credit cards with very low available balances show that the person is a poor money manager and could have problems paying bills in the future.

  • Short credit history -- A person with a short credit history does not provide the lenders with a clear enough picture of his payment habits and credit worthiness.

  • New applications for credit -- New applications will always lower your credit score, and will make lenders hesitate in granting you credit. Even if you have a good credit score, when you apply for a new credit card your score will go down.

  • Limited types of credit in use -- Some lenders will give you a credit line greater than the amount you have already borrowed, This is scary to lenders because it means the borrower can easily increase his outstanding debt.

How to improve your credit score and save money:

  • Make sure you always pay your bills on time. Even a one-day late payment can pull your credit score down.

  • Don't max out your cards. Keep the balances low, and if you have a revolving account balance or loan that is quite big, strive to pay off more than just the minimum amount due.

  • Check your credit report to ensure that all the information in it is accurate.

  • Don't apply for new credit accounts unless you really need them. When you go rate shopping, limit your shopping period to one or two weeks.

  • If you have a credit card that you hardly use, keep it as this will help to establish your credit history. Use it occasionally, and make sure you pay the amount due in full.

Check out HowToEstablishGoodCredit.com for articles on boosting your credit score to achieve a good credit and other useful, practical advice on getting your credit report and credit score from legitimate sources.

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