Understanding Your Credit Score
BOSTON (CBS) - Knowing your credit scores is important. Credit scores are a quick and easy method for a creditor to judge you as a potential customer. It wasn't that long ago that creditors kept all information about credit scores a secret.
Credit scores are not free, but when you are getting your free annual credit report Experian will be offering you their Vantagescore. This grading system is now similar to the FICO score, the credit score that most creditors still use.
My Fico will sell you copies of your credit scores for $19.95 each and they have good information on their website on how to improve your score.
Credit scores are important because lenders look at these scores to determine what interest rate you will be charged for your mortgage or credit card. If your score is below 700 it may be difficult to qualify for a new credit card.
Insurance companies look at these scores to determine if you are a good risk or they should charge you higher rates. A landlord will look at these scores to see if you pay your bills on time.
The higher your score the lower your interest rate will be when you apply for a mortgage. The difference between a good score and a poor one when applying for a $300,000, 30-year fixed-rate mortgage could be a savings of over $3,000 (3,396) a year in interest payments.
Your credit score uses a very complicated formula to come up with a simple number that creditors can use.
So how do you improve your credit score? The best and easiest way to increase your score is to make payments in a timely manner and not max out your credit cards. These two factors comprise 65% of your score! Longevity is also a big plus on your credit score as well. It's worth about 15% of your total score.
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You can hear Dee Lee's expert financial advice on WBZ NewsRadio 1030 each weekday at 1:55 p.m., 3:55 p.m., and 7:55 p.m.
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