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Consumer Archive

Consumer

A good credit score puts you in drivers seat

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NEW YORK (11/10/08)--If you're one of those consumers who kept a high credit score--750 or better--you’re in position to negotiate for bargains (Business Week Nov. 3). Retailers already have begun cutting prices, long before holiday spending officially kicks off. And the growing number of foreclosures and bankruptcies are changing underwriting standards for most lenders. That's putting folks with higher credit scores in prime position to capitalize. Two years ago, lenders granted people with a credit score of 650 their most competitive interest rates for mortgages. Today it takes at least 750 points to get the best deal. And it wasn't that long ago that consumers could keep their credit card balances below 35% of their credit limit to maintain a high credit score. Now 20% is the maximum allowed for a top credit score ranking. With the soft housing and auto markets, consumers with a high credit score are in position to negotiate. If you’re buying a home, you might be able to get a contingency clause giving you an out if you can't secure a mortgage rate that fits your finances. And vehicle buyers with top credit scores report they are able to negotiate on both the cost and interest rate for a new vehicle. On the other end of the spectrum, consumers with marginal credit scores often are turned down or asked to put up more collateral. Last month, GMAC, the finance arm of General Motors, announced it would require that borrowers have a credit score of 700 to borrow money for a vehicle (CNNMoney.com Oct. 20). The Credit Union National Association’s Center for Personal Finance, Madison, Wis., offers tips for improving your credit score:
* Pay all bills on time. Payment history makes up about 35% of your score, according to Fair Isaac Corp. Mail bills earlier, pay bills online, or set up auto-pay for bills to be paid directly from your share draft/checking account. * Use less than 25% of your credit limit. A higher utilization rate indicates you’re a high risk for default. It’s best to keep account balances low. * Don’t close all old accounts. Doing so decreases your total line of credit available, resulting in a higher utilization rate. * Maintain a healthy mix of credit. This includes a mortgage, a credit card or two, a personal loan such as a car loan, and perhaps a retail card. * Don’t open a flurry of new accounts. This is especially important right before you apply for a mortgage or other loan. * Pay library fines and parking tickets. Unpaid fines may be reported to a credit reporting agency and viewed negatively by potential lenders.
For more information, read “Tough Times Series: Credit Savvy Is Key to Avoiding Costly Missteps” in Home & Family Finance Resource Center.