My Credit Detail

You may be out of school, but that doesn’t mean you’re free from report cards. In fact, if you want to buy a house, a car or any other big-ticket item, a lender will look up your “grade” as soon as you come knocking. That grade is your credit score.

Generally speaking, a credit score measures the likelihood you’ll repay what you owe, and it is based on information in your credit report.

The rewards of raising your score speak directly to your wallet: You’ll qualify for more loans and be offered better interest rates.

There are many varieties of credit scores available to lenders. But the most widely used for large loans are FICO scores, which are based on a scoring system developed by Fair, Isaac & Co., and which are provided to lenders by the three national credit bureaus - Equifax, Experian and TransUnion.

Consumers may now get their FICO score or a comparable version of it from each of the bureaus. It pays to review these scores at least three to six months before shopping for a loan so you’ll have time to improve your standing before approaching a lender.

Following are five things you can do to boost your creditworthiness, plus more information on obtaining your personal score.

5 steps to better credit
Correct blatant mistakes. Your credit score is only as good as what shows up in your credit report. Review your reports from all three credit bureaus for accuracy once a year as well as several months before applying for a loan. Changing a mistake on your report - such as a payment that is wrongly labeled as late — can take 30 days to three months, sometimes longer.

Pay your bills on time. This is always a good practice, and it’s especially critical that you make prompt payments close to the time you need a loan. That’s because a late or missed payment in the last few months is likely to lower your score much more than an isolated late payment five years ago.

Reduce your credit card balances. A heavily weighted factor in your FICO score is how much money you owe on your credit cards relative to your total credit limit. Generally, it’s good to keep your balances at or below 25 percent of your credit card limit, said Jeanne Kelly, founder of The Kelly Group in Brookfield, Conn., which helps clients improve their credit scores.

Article source : http://money.cnn.com/2002/02/15/debt/q_fivethings_creditscore/

About 1% of the population has perfect credit, meaning a FICO score of 850 on Fair Isaac’s scale of 300 to 850. How they earned those gold stars is no secret. A quick peek into their credit files reveals that these star pupils haven’t got any fancy tricks up their sleeves. Instead, they share such ho-hum traits as:

• Between four and six revolving accounts (meaning credit cards).
• At least one “installment” tradeline (e.g., a mortgage or auto loan) in good standing.
• A few accounts around 20 years old with a long history of positive use. (To get into the 800 range, you need 10 years of positive account history.)
• Around 30 years of credit use.
• No late payments (or other account blunders) for at least the past seven years.
• Very few credit inquiries (no more than one to three in a six-month period).
• No derogatory notations — collections, bankruptcies, or bad accessorizing. (Just kidding on that last one.)
• Debt levels on credit accounts of less than 35% of their overall credit limit.

Enough gawking, let’s cheat off their homework! Here’s a one-minute crash course on keeping your credit healthy for life:

0:60: See what everyone’s saying about you
Three major credit-reporting agencies are keeping tabs on your financial comings and goings, and so should you. At least once a year (and certainly several months before entering any major loan situation), go to annualcreditreport.com and pull your rap sheets from Equifax, Experian and TransUnion. (You get one freebie from each bureau once a year.)

0:52: Fix the typos
Given that your credit record spans nearly a decade of your borrowing activity, it’s no surprise that errors sometimes turn up. Some common credit-reporting blunders include out-of-date addresses, closed accounts being shown as open, and outright false information.

0:40: Mend your uncreditworthy ways, ASAP
Those self-inflicted credit wounds (like a history of late payments, defaults, and generally bad behavior — think back to your freshman year in college) will fade from your record over time. (You cannot wipe out accurate information from your credit report. Nor can any firms who offer to do so for a fee.) Since your most recent behavior carries more weight than old news, vow that from this day forward you will be a financial Goody Two-shoes.

0:25: Memorize the mantra: It’s plastic, not cash
A credit card is just that — a credit card. Even though you’ve been deemed worthy by some entity (Target, Visa, The Puppy Palace) to borrow $34,538, you don’t actually have $34,538 to spend, which leads naturally to the next rule …

0:19: Ignore bankers’ rules on what is an “acceptable” level of debt
Your debt-to-income ratio is the measure of how much debt you carry to how much money (after taxes) you have coming in. In the world of lending, it is acceptable to carry 25% of your income in debt. That ratio is pretty high in our opinion. At the very least you want to keep your debt — including car loans — to 15% or less of your after-tax income.

0:07: Lather, rinse and repeat
Based on what’s in the Bo-Derek-of-borrowers’ files, you can see that fancy maneuvers aren’t necessary to keep your credit looking spiffy. Just keep your spending under control, pay your bills on time, don’t apply for extra credit too often — and don’t be shocked when you find yourself among those with elite credit-score status.

 Article source : http://www.fool.com/personal-finance/credit/60-second-guide-to-perfect-credit.aspx