Building a Credit Reputation

Want to qualify for the lowest interest rates when applying for auto, mortgage or personal loans? Then you’ll need a top credit score.

Lenders today rely heavily on your three-digit credit score to determine if you qualify for a loan and at what interest rates. In general, lenders today reserve their lowest rates for those borrowers have a credit score of 740 or higher on the popular FICO credit-scoring system.

The good news is that earning a high credit score is not a complicated task. It just takes some common sense.

To build the kind of credit score that will land you the lowest interest rates most experts recommend following these ‘best practices’.

Pay your bills on time: Nothing is more important to building a solid credit score than is paying your bills on time. Every time you miss a credit card payment or make your auto loan payment ten days late, your credit score takes a hit. With enough of these hits, your score will quickly fall out of the “good” range, and you’ll be stuck paying higher interest rates when you qualify for a loan.

Do not runup credit card debt: Having too much credit card debt can also damage your credit score. Lenders look at consumers burdened with high credit card debt and see risky borrowers. The theory is that these borrowers are already paying a significant amount of money each month to make their credit card payments. Lenders see them as more likely to struggle to make their other payments, too, including mortgage and car loan payments.

If you want to provide a boost to your credit score, begin paying down your credit card debt, and don’t run up new charges.

Study your credit report: It is important, too, to review your credit report on a regular basis. You can order a free copy of each of your three credit reports — compiled by the credit bureaus Experian, Equifax and TransUnion — once a year from the site, AnnualCreditReport.com. Don’t be fooled, though, into ordering credit reports from other similar websites. Most of these sites — including those with “free” in their names — require consumers to sign up for trials of credit-monitoring services. If you fail to cancel these services, you will be hit with a monthly fee.

Once you have your report, study it carefully. Your reports will list your outstanding revolving debt and any missed or late payments you have made. It will also list your open credit card accounts. Look for any mistakes. Then correct them in writing. An error on your credit report can cause severe damage to your credit score.

Be a smart consumer: The only way to improve your credit score, once you’ve corrected any errors on your credit reports, is to act as a smart consumer. This means paying your bills on time and cutting down on your credit card debt. Don’t sign up for any service that promises to improve your credit score overnight. These services are often scams, and they have no secret formulas for improving your three-digit score.