July 31, 2008

Take steps to repair your credit score

Do you know your credit score? A low credit score could be costing you money. People with poor scores usually pay higher interest rates, which translates into larger monthly payments for mortgage, auto or student loans. Poor scores can also cause problems when renting an apartment, signing up for a cell phone plan or even getting a job. Luckily, according to the California Society of CPAs (www.calcpa.org), there are steps to take to improve your score.

Your credit score is calculated by three national credit bureaus: Equifax, Experian and TransUnion. The scores generally range from 300 at the low end to 850 at the high end. The score you get from each credit bureau may be slightly different, but they should all fall within the same range.

The credit bureaus consider several factors when they determine your credit score. If you’ve had many late payments in the past or have filed for bankruptcy at some point, those facts will lower your credit score. However, those problems will carry less weight if they occurred in the distant past, rather than the last year or so.

The bureaus will also examine how much outstanding debt and how many credit card accounts you have. The length of your credit history is important, too, so a recent graduate with a brand new credit card may get a lower score than someone with years of good payment history.

What’s best score to have? Most people who score in the mid 700 range or higher will likely qualify for the loans they want without having to pay a premium for credit. But how do you raise your score if it’s not at that level?

The first and most important step is to start paying your bills on time. Your payment history is a critical factor in calculating your score, so improving your payment habits can have the greatest impact.

You should also make an effort to lower the amount of debt that you have outstanding. If you’ve charged up to the maximum on every credit card you own, that will lower your score. CPAs advise that you use no more than 25 percent to 30 percent of your available credit. That shows the credit bureaus that you’re able to manage some debt, but that you’re not overspending with the cards you have.

It’s a good idea to review your credit report with the three credit bureaus regularly to make sure their information is accurate. You are eligible to get a free credit report every year from each of the three major credit bureaus. To learn more, go to www.annualcreditreport. com or call (877) 322-8228.

Reviewing your report enables you to correct any mistakes you may find. In addition, if you find a number of errors, it could be an indication that you are a victim of identity theft. If this is the case, someone is using your personal information, which is something you’ll want to remedy as quickly as possible.

The best advice to receive and maintain a healthy credit score is to get one or two credit cards while you’re relatively young, and use them wisely. That makes it possible to build a substantial credit history and demonstrate that you are a good credit risk.

Managing credit properly is just one of the steps toward maintaining healthy finances. If you have questions about your credit score or debt management plan—or any other financial issue facing your family—be sure to consult your local CPA.