According to research from the large credit repository Experian, as of November 2009 the average credit score in America was 692. Experian uses the Fair Isaac Risk Model or FICO which is a credit scoring model. The scale ranges from 300 to 850. Today, a 692 is considered a B+ score. You need over 720 to get an A and over 740 to get an A+. 697 is considered "very good" and can still get you a loan with a pretty good interest rate.
Once you reach a score of 720, you are in the "excellent" range and can definitely qualify for loans at the best interest rates available. This is why it is so extremely important to stay on top of your credit and to have a good understanding of how credit scores actually work. Knowing your current status and setting goals for your future status can help you to save literally thousands and thousands of dollars in interest depending on how much you end up borrowing.
When it comes to mortgages, if you have a credit score that exceeds 620 and you can provide proof of enough income to comfortably handle all your debt, you should be able to get an FHA mortgage. But FHA loans come with 2 types of insurance that need to be paid- mortgage insurance premiums (MIP) and private mortgage insurance (PMI). MIP is an amount that is typically financed into the loan. It runs 1.75% of the amount borrowed. PMI usually will run .5% of the loan annually.
If you happen have an average American credit score, you can either be content with that and accept the fact that you are paying a little more on your interest rates, or better, you can begin working on your score to bring it up to a level that will qualify you for lower rates.
There are many ways that you can improve your credit score.
First of all, the easiest way to establish better credit is to pay all your bills on time. The timeliness of your bill payments accounts for 35 percent of your total credit score.
You should also try try to keep your balances at less than 50% of your available credit. The lower, the better. This calculation, which is averaged over all your open accounts, represents 30% of your credit score.
The next item to look at is how long you have had accounts open. The longer the history of an account, the more it will help your credit (provided that the payments have been made on time.) While there's not much you can do to change the length of your credit history, one thing you should definitely NOT do is close any accounts that have always been in good standing. This certainly helps older people more than the young but suffice to say - if you have some good paying accounts, keep them! If you have teenagers, work with them to start building good credit early on in life.
Having many sources of credit is usually a positive, as long as they have been managed well, meaning the payments have all been made on time. This aspect can account for up to 10% of your score.
Avoid signing up for multiple credit cards in a short time period. This will generate inquiries on your credit report. An inquiry by itself is not bad but if you have many inquiries it can lower your score. Limit applications to what you really need and definitely do not sign up for a credit card just because you get an application in the mail. Remember, Pre Approved just means that you live in a neighborhood where some of your neighbors exhibit timely credit payments, that's all.
So what do you say? Are you better or worse off than the average American?
No comments:
Post a Comment