Perfect score: taking the mystery out of building A-1 credit.LIKE MANY, LISA The first personal computer to include integrated software and use a graphical interface. Modeled after the Xerox Star and introduced in 1983 by Apple, it was ahead of its time, but never caught on due to its $10,000 price and slow speed. NDIAYE FILLED OUT an application for her first Visa credit card in college. Unlike most, she paid her bills on time, kept the balances few, and 20 years later, she still has the account. While this may seem like common sense, these actions, coupled with Ndiaye's diligent dil·i·gent adj. Marked by persevering, painstaking effort. See Synonyms at busy. [Middle English, from Old French, from Latin d payment history on all of her credit accounts, lands her a near perfect credit score of 843--a distinction that only a marginal percent of the U.S. population boasts. "A perfect score is pretty rare," says Ryan Sjoblad, a spokesperson for Myfico.com, a division of Fair Isaac Fair Isaac Corporation (NYSE: FIC), founded in 1956 by engineer Bill Fair and mathematician Earl Isaac, provides consulting services and enterprise decision management systems. . "Less than 1% has an 850." Fair Issac Corp. created the FICO score FICO Score A standard credit score which makes up a substantial portion of a credit report that credit bureaus sell to lenders so they can asses an applicant's credit risk and whether to extend them credit. to help lenders determine individuals' credit risk profile. The score ranges from 300 to 850; the higher the score, the lower the risk to creditors. To buy just about anything on credit in America, one needs a respectable credit score, which ranges from 620 to 680. To buy anything on credit at a good price, one needs a great credit score, which is 700 and above. A select few, like Ndiaye, have reached the highest level and are reaping financial benefits because of it. To find out how to take your credit score from mediocre me·di·o·cre adj. Moderate to inferior in quality; ordinary. See Synonyms at average. [French médiocre, from Latin mediocris : medius, middle; see medhyo- to great, read on. Higher credit scores mean better interest rates and top-tier treatment from all lenders--from mortgage to credit card companies LIVING THE LIFE OF LISA "I never had a bout with bad credit and if I were to in the future, I'd have a fit," says Ndiaye with conviction. The framer anti-money-laundering compliance officer at Bank of New York The Bank of New York, abbrieviated to BNY, was a global financial services company that existed until its merger with the Mellon Financial Corporation on July 2, 2007.[1] The bank now continues under the new name of The Bank of New York Mellon Corporation. is used to getting what she wants from lenders. When the 39-year-old purchased her Newark, New Jersey, condo 10 years ago, she not only landed a decent rate for that period, but she also got some other perks perk 1 v. perked, perk·ing, perks v.intr. 1. To stick up or jut out: dogs' ears that perk. 2. To carry oneself in a lively and jaunty manner. . Her rate was fixed at 7.25% on a 15-year mortgage, and she paid no points and put only 3% down. By comparison, the 1994 BankRate.com National Index averaged 7.63%, with rates as high as 8.75%. "Depending upon the point in the year that she got the rate, 7.25% was right on target because anytime after March, rates were much higher," says Greg McBride, senior financial analyst for BankRate.com. Today, the Index hovers around 5.24%, therefore, if Ndiaye decides to refinance Refinance 1. When a business or person revises their payment schedule for repaying debt. 2. Replacing an older loan with a new loan offering better terms. Notes: When a business refinances they typically extend the maturity date. or chooses to go into another home, she would be in a position to receive prime rates. "The higher the score, the more benefits are offered to buyers," says Darrolyn I. Sharp, a senior loan officer at CU Mortgage in Merrillville, Indiana Merrillville (IPA: [ˈmɛ.ɹəlˌvɪl]) is a town in Lake County, Indiana, United States. The population was 30,560 at the 2000 census. Merrillville is located in the east-central portion of Lake County. . Some of the benefits or options available to high credit score holders are no money down, 100% financing, low interest rates, or even 'no document' loans. "With a 700 credit score, I can do a no-income, no-asset loan [for the client]. The underwriter underwriter n. a company or person which/who underwrites an insurance policy, issue of corporate securities, business, or project. (See: underwrite) UNDERWRITER, insurances. One who signs a policy of insurance, by which he becomes an insurer. doesn't have to verify assets or income because everything is based on the credit score," explains Sharp. When Ndiaye calls, credit card companies listen. "I wanted to increase my line of credit, and in five minutes, my line was increased to $15,000 from around $10,000," recalls Ndiaye. "When I was traveling for work. I needed larger limits," she explains. Now a full-time housewife and stay-at-home morn, she still enjoys a high limit. The card she uses most often has a 9.24% interest rate, which is significantly lower than the 19.99% or even 24.99% interest rate offered to those with less-than-stellar credit. A disciplined saver, Ndiaye has always paid cash for her cars. but many with great credit enjoy major benefits with auto financing. "A customer with great credit has choices," says Dan Crane
PAYING DUES In her 22 years of business, Sharp, the senior loan officer, has seen mostly fair to bad credit scores for people in their late 20s and early 30s. But recently she was pleasantly surprised when 31-year-old Tychelle Waterson walked in the door. "She's a rarity," says Sharp, about her client. "I figured since she was a first-time homebuyer First-Time Homebuyer An IRA owner who is exempt from the early-distribution penalty (which applies to IRA distributions that occur before the IRA owner reaches age 59.5) for distributing funds from his or her IRA to buy, build, or rebuild a home when having had no interest in a , she would only qualify for Federal Housing Administration Federal Housing Administration (FHA) Federally sponsored agency chartered in 1934 whose stock is currently owned by savings institutions across the United States. The agency buys residential mortgages that meet certain requirements, sells these mortgages in packages, and insures lending. And after I got her credit score, I said, 'You can have whatever you want,'" recalls Sharp. Waterson's highest score was a 735, but it is customary for mortgage companies to pull a credit score from all three major credit bureaus--Experian (www.experian.com), TransUnion (www.transunion.com), and Equifax (www.equifax.com)--and use the middle score. Waterson's middle score was a 712, so Sharp was still able to offer the licensed practicing nurse top-shelf assistance. "[A credit score of] 700 and above is the highest tier for us [to give best rates and offers]," says Sharp. "Underwriters kind of cringe cringe intr.v. cringed, cring·ing, cring·es 1. To shrink back, as in fear; cower. 2. To behave in a servile way; fawn. n. An act or instance of cringing. at scores below 620." Believe it or not, auto dealers cringed at Waterson just a year ago when she went to finance a car. "Buying a car was a lot harder; they gave me a really extreme interest rate, and I got a lower end car," explains Waterson, who is paying 20% interest on her 2003 Ford ZX2, Waterson had just finished paying off about $5,000 in debt. A few years ago, Waterson's student loans and doctor bills started to add up and she got behind on the payments. "I was at a point where I didn't have a job; I had no income. I was doing childcare at home and going to school for nursing," explains Waterson. After using the services at a local credit counseling Credit counseling (known in the United Kingdom as debt counselling) is a process offering education to consumers about how to avoid incurring debts that cannot be repaid. This process is actually more debt counseling than a function of credit education. service that helps members with debt reduction, she was able to get on the road to rebuilding her credit. In 1995, Waterson consolidated her medical bills, student loans, and a credit card bill. But she fell on some tough times while she was in repayment and had to add more medical bills in 1997. "Tychelle had a lot of medical bills, a student loan, some collection accounts, and credit cards as well. "When you get to that spiraling-downward syndrome, you just need some help," says Pamela Stalling, executive director at Consumer Credit Counseling Service of Northwest Indiana Northwest Indiana, also known as The Calumet Region, or just The Region, is comprised of Lake, Porter, LaPorte, Newton, and Jasper counties in Indiana. This region neighbors Chicago, Illinois and Lake Michigan, and is also the Indiana component of the Chicago . "She could have been finished sooner, but she added to her debt. In 2000, she added on. In 1997, and in 1999 she added on." Although the average client at credit counseling ends the program in four and a half years, it took Waterson almost eight years to get a solid footing on her finances and fix her credit. "I just started getting credit cards in the last six months," explains Waterson, who now has a Platinum Visa credit card with an 8.45% interest rate. She has a 6.87% interest rate on a 30-year, $60,000 fixed mortgage for a home in Gary, Indiana. "The loan officer [Sharp] said if I didn't have the funds up front, I could get a conventional loan with no down payment and just pay closing costs Closing Costs The numerous expenses (over and above the price of the property) that buyers and sellers normally incur to complete a real estate transaction. Costs incurred include loan origination fee, discount points, appraisal fee, title search, title insurance, survey, taxes, . I said OK, and the same day I got the loan approval and called the realty realty n. a short form of "real estate." (See: real estate) REALTY. An abstract of real, as distinguished from personalty. Realty relates to lands and tenements, rents or other hereditaments. Vide Real Property. agency," recalls Waterson. Having recently closed on her home, Waterson will look to refinance tier car in the next few months. As you can see, there is no one way to achieve a perfect credit score. Factors such as paying bills on time, length of credit, and number of credit inquiries all factor in. Yet, if you have great credit or a mediocre score, these examples and the tips that follow will help you achieve credit score perfection. 5 KEYS TO CREDIT SCORE SUCCESS 35% PAYMENT HISTORY "Most who pay on time are going to have a good score; you're talking about anything from the mid to high 600s," says Robin Holland, senior vice president of customer services at Equifax in Atlanta, adding that a 700 is an excellent score in her opinion. You can add a few extra points to your score by paying the moment you receive the bill. Ndiaye and Waterson are big proponents of paying better than on time. Once Waterson had her overdue OVERDUE. A bill, note, bond or other contract, for the payment of money at a particular day, when not paid upon the day, is overdue. 2. The indorsement of a note or bill overdue, is equivalent to drawing a new bill payable at sight. 2 Conn. 419; 18 Pick. bills consolidated, she started paying them back before they went into collections. Now that she has a full-time job and makes a better salary, she tries to get ahead of her bills. "I bought a car and I pay for it the day [I receive the bill]. I don't even deal with that grace period stuff," explains Waterson. 10% MIX OF CREDIT Having different types of credit can positively impact your score. To get the best score, its best to have a mix of revolving accounts A revolving account is a type of debt account where the outstanding balance does not have to be paid in full every month by the borrower to the lender. The borrower maybe required to make a minimum payment, based on the balance amount. and installment loans Noun 1. installment loan - a loan repaid with interest in equal periodic payments installment credit consumer credit - a line of credit extended for personal or household use loan - the temporary provision of money (usually at interest) , says Holland. Revolving accounts are credit cards and line of credit accounts. Installment loans are student loans, mortgage, and auto loans. Waterson and Ndiaye have managed to have at least one of each. Both have four revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. cards. Waterson has an auto loan and a mortgage, and Ndiaye has only a mortgage. By design, Ndiaye decided not to take out an auto loan but saved to purchase a new car with cash. This didn't affect her credit however because she still had a healthy mix. "It's not good to see 20 open credit cards and no home or auto loans," warns Sjoblad. 30% ACCOUNT BALANCES Holland of Equifax says, "You can pay your minimum payments every month and still have a low score because you have high balances." Sjoblad concedes, "FICO FICO See: Financing corporation likes to see that people are using a low amount of their credit limit." This rule works just fine for Ndiaye, who pays off all major debts before acquiring new debt. "I paid off my undergraduate loans in two years before I went to graduate school," she remembers. "My graduate school loan was a 10-year loan for $15,000, and I paid it off in five years," says the University of Chicago alumna. Yet some say it's best to leave a small balance on your revolving credit card debt. But Stephen Snyder, author of Do You Make These 38 Mistakes With Your Credit? (Bellwether Bellwether A leading indicator of trends. Notes: A bellwether stock is a stock that is used to gauge the performance of the market in general. General Motors was an example of a bellwether stock, hence the saying "What's good for GM is good for America. Inc.; $295) says "the truth of the matter is you will get the highest FICO score if you pay off the entire balance each month." Snyder offers this tip to those who can't afford to pay off the entire balance: "A way to make the most impact fast is simply by increasing your credit limits. Say you nave nave (nāv), in general, all that part of a church that extends from the atrium to the altar and is intended exclusively for the laity. In a strictly architectural sense, however, the term indicates only the central aisle, excluding side aisles. a $1,000-limit Visa card and you [spend] half of it each month. if you raise that limit to say $2,000 and you still only use $500 a month, the ratio of how much you [owe] each month [versus your credit limit] goes down substantially; therefore, your scores will increase." 15% LENGTH OF TIME WITH CREDIT "Someone who has used their credit responsibly for 20 years, versus someone just out of college, is going to have a greater benefit from the length of their credit history," explains Sjoblad. Waterson started thinking about credit 13 years ago when she got her first credit card. Ndiaye on the other hand has had a responsible credit history for 20 years, which undoubtedly accounts for the additional 100 to 140 points she has over Waterson's credit score. "Don't close accounts," Snyder advises. "When you do, it lowers your scores." First, if you close unused accounts, your total credit card limit may immediately be maxed out because you would be using 100% of your revolving credit. However, by keeping the account open, you may only be using 50% of your credit card limit. Second, it shortens your credit history. 10% INQUIRING inquiring, v to draw information from a client—whether by verbal questioning or physical examination—to assess the person's state of health. %CREDIT "Anytime you take out new credit, it's a short term drop in your score," says Sjoblad. Likewise, every time someone gives permission to a lender to pull his or her credit report, the score also drops. "If you shop for a mortgage or auto loan at five different places within 14 days, it will only count as one inquiry and it won't show up for 30 days," says Sjoblad, adding that he would be surprised if it was a demerit de·mer·it n. 1. a. A quality or characteristic deserving of blame or censure; a fault. b. Absence of merit. 2. A mark made against one's record for a fault or for misconduct. of more than 10 points for one inquiry. Being mindful mind·ful adj. Attentive; heedful: always mindful of family responsibilities. See Synonyms at careful. mind of their debt load, Waterson and Ndiaye don't open new credit accounts often. Ndiaye says she doesn't really worry too much about inquiries against her score. And for those who use credit responsibly, this rarely becomes a major issue.
HOW MUCH
FOR THAT
HOUSE!
Depending on your FICO score,
here's what you can expect to
pay on a $150,000-30-year,
fixed-rate mortgage.
Interest Monthly
FICO Rate Payment
720-850 5.72% $872
700-719 5.84% $884
675-699 6.38% $936
620-674 7.53% $1,057
560-619 8.53% $1,157
500-559 9.29% $1,238
SOURCE: MYFICO.COM
WHERE DO
YOU FIT IN?
National distribution of FICO scores
FICO % of
Score Population
Range
0-499 1%
500-549 5%
550-599 7%
600-649 11%
650-699 16%
700-749 20%
750-799 29%
800-850 11%
SOURCE: MYFICO.COM
|
|
||||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion