Saturday, September 4, 2010

Credit crunch makes raising credit score a top concern

Raising a credit rating will save a fortune within a duration of loaning

Everyone wants a good credit score. These days, it pays to do something about it. Because of the credit crisis, credit scores have to be higher to get results. It is getting hard to qualify for a loan, let alone a loan at a reasonable interest rate these days. To do so, most people will have to improve their credit ratings. A good credit score saves money.A lower credit score signifies cash down the drain. Among Fico ratings, 650 is regarded as mediocre. When a Fico score enters 750 territories, that’s quite darn good. A rare breed of consumers work at it to pass the 800 mark. An Arkansas man is a case in point. He dedicates his life toward the goal of building his Fico score to 850. A rich, relaxing retirement might be the reward for his achievement.

How to get the 850 Fico score

Reaching a credit rating of eight hundred fifty is rare. As outlined by Fico only .5 percent of individuals in the U.S. are in that range. A CNN profile of Chris Plepinski of Rogers, Ark., chronicles his quest to achieve that elusive number. Plepinski’s current FICO score is higher than 82 percent of the population at 813. Plepinski is destined to save lots of cash in the future, thanks to his stratospheric Fico score. However, he told CNN that nothing short of 850 will be satisfactory. To do that he studies every factor of a Fico rating in detail. Each 3 months, he revisits his Fico status and can make adjustments to his credit and borrowing to get the best achievable result. A couple of years ago he added an auto loans with bad credit to his credit mix, instead of paying cash, which he could have, as a tactic to increase is Fico score.

Fico credit ratings and just how to raise them

A FICO credit rating is distilled from credit report data collected by the Equifax, Experian and TransUnion credit agencies. As reported by Bankrate.com, the spread of FICO scores goes from the low 300s to 800 and above. The formula isn’t overly complex. The final number is reached by calculating the credit aspects listed below:

Payment history – 35 percent

Total debt load – 30 percent

Length of established credit – 15 percent

Types of accessible credit – 10 percent

Recent new credit – 10 percent

The list above provides a framework for such credit rating raising approaches as avoiding late payments and missed payments, keeping credit card balances low, resisting offers for new plastic or loans and keeping existing plastic marginally active.

The reason why increasing a credit rating matters

A less than stellar credit rating, as outlined by Liz Pulliam Weston at MSN Money, can put the hurt on a person’s finances over time. A woman maintaining a 750 credit score was compared with one more sitting at 650. She calculated the main difference each person paid in interest on various loans, including student loans, credit cards, auto loans bad credit, mortgages and home equity loans. Over a lifetime of borrowing, the person with the 650 credit score paid $201, 712 more than the person with a 750 score. Assuming an 8 percent return, Weston factored $201,712 into 50 years. A total of $2.3 million for retirement could result by investing the amount of interest saved by the higher credit score.

Additional reading

CNN

money.cnn.com

Bankrate

bankrate.com

MSN Money Central

moneycentral.msn.com



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