You are likely familiar with the term
“credit score,” but do
you truly understand exactly what it is, and just
how it can affect your ability to not only get a loan,
but the interest rate you’ll pay as well as
the amount of your monthly payments? Many people know
that they have a credit rating, but their knowledge
doesn’t extend much beyond that.
In fact, a recent study conducted by Caravan Opinion
Research Group for GMAC Mortgage in Horsham, PA brings
these facts to light. In a telephone survey, participants
were asked various questions about their credit scores
and how they believe it will affect them financially.
Surprisingly, the survey points out that many Americans
simply don’t understand how the system works.
In other words, many of us don’t know how to
put this valuable tool to work in our lives.
For example, 52 percent of those surveyed said that
if their income were raised, it would automatically
increase their credit score, when in reality, income
has nothing to do with the score. Let’s take
a look at how the participants view their credit scores,
and talk about why or why not they were correct in
their answers.
- 70 percent of those surveyed were right
about one thing: a FICO score of 800 or more
will allow you to get the lowest rate interest loan
on a mortgage. The highest possible FICO score is
850, and anyone who achieves 760-850 points on their
score is considered low-risk.
- 85 percent of those surveyed also said that paying
your bills on time is a good way to increase your
credit score. In fact, this is one of the best ways
to insure that your credit worthiness is up to par.
- 32 percent told surveyors that closing out all of
their existing credit accounts would likely increase
their score, which in fact could be devastating to
a person’s credit score. Why? Because if those
accounts show a good payment history—something
crucial to a good score—by closing them, the
record of good payments would be completely wiped
out.
- 55 percent got it right when they said that paying
down credit card debt was an optimal way to increase
a credit score.
- But 31 percent made a blunder when they said that
reducing the credit limit on their credit cards would
help their scores. In fact, a person with a high credit
limit who only uses a portion of that credit is ranked
much higher on their score.
So, how did you measure up on your knowledge of FICO
scores? If you have some false assumptions
as many Americans do, why not take a moment to brush
up on the latest information? The easiest place to
do that is by going directly to the source—FICO’s
own web site. Visit it here (http://www.myfico.com/
) and find out what you can do to improve your score
today.
07/14/05
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