Credit Scores

Have you ever wondered how important a credit score is?  Credit scores are a big mystery to some people.  There are things called tri-merges, credit ratings, adverse credit, no credit, credit bureaus, etc.  All the terms and all the reports overwhelm a lot of people.  Only when our credit was stolen and we became victim's of identity theft did I learn to read a credit report.

The important thing to keep in mind is that the number of your credit score is shown through studies to be directly related to the amount of risk a lender takes in loaning money to the borrower.  Credit scores range between 300 and 850.  If your credit score is very low, the risk to the lender is high.  Lenders charge higher interest on loans that have a higher risk.

A borrower in the mid 700's can pretty much write their own ticket for a loan.  People with high credit scores are rewarded with lower interest rates on loans.  People with high credit scores can also get what is called a "no-doc" loan (no documentation like pay stubs, tax records, etc., is verified for the application).  A "no-doc" loan can be used to buy a home without selling a previous residence (which may be required at lower credit scores) which can be important in some purchases.  It also can be used when a person is self-employed or uses investment property income as their sole means of support.

To improve your credit score, take some simple steps.  Close unused credit cards.  Pay off any outstanding balances of debt.  Pay on time . . . always. If you have no debt, use your credit card for purchases and pay off the charges each month without carrying a balance.  Basically, when one opens a credit card, one promises to pay.  Higher credit scores are created by keeping your promises!