Having a good credit rating means a lot more than it used to. The credit crunch has raised the bar on credit scores. It’s getting hard to qualify for a loan, let alone a loan at a reasonable rate of interest these days. To do so, most individuals will have to boost their credit ratings. Increasing a credit rating results in more favorable rates of interest.Lower credit ratings are harmful to a person’s finances. They make credit cost more than it has to. A FICO credit score of 650 is considered fair to poor. A FICO credit rating of 750 is considered good to great. A rare breed of consumers work at it to pass the 800 mark. A man living in Arkansas aspiring to a Fico score of 850 is a textbook example of what it takes. A rich, calming retirement could be the reward for his achievement.
Is really an eight hundred fifty Fico rating feasible?
Reaching a credit rating of 850 is rare. According to Fico only .5 percent of people 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. Currently, Plepinski’s score is 813. His FICO score is higher than upwards of 82 percent of the rest of us. Over the course of his life, Plepinski’s unusually high score could conserve him hundreds of thousands of dollars. However, he told CNN that nothing short of eight hundred fifty will be satisfactory. To get there, Peplinski scrutinizes all the aspects Fico uses to determine credit ratings. Each three months, he revisits his Fico status and tends to make adjustments to his credit and borrowing to get the best feasible result. A few years ago he added an automobile loan to his credit mix, instead of paying cash, which he could have, as a tactic to increase is Fico rating.
The details regarding raising a credit score
Data on credit activity from Equifax, Experian and TransUnion is collected by Fico to produce credit ratings. As reported by Bankrate.com, the spread of FICO scores goes from the low 300s to 800 and above. The formula is not 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 available credit – 10 percent
Recent new credit – 10 percent
Using these factors as a guide, timely payments, reconciling overlooked payments, reducing balances on revolving credit (charge cards), paying down rather than transferring balances, staying from new debt and keeping existing charge cards nominally active are helpful for raising credit scores.
Exactly how raising the credit score pays off
A less than stellar credit score, as outlined by Liz Pulliam Weston at MSN Money, can put the hurt on a person’s finances over time. Weston projected some numbers for two young individuals for a period of 50 years. One has a credit score of 750 and also the other 650. Weston ran numbers on the disparity of interest each could expect on such transactions as student loans, automobile loans, charge cards, mortgage loans and home equity lines of credit. Half a century hence, a total of $201,712 in interest paid separated the two, with the high credit score coming out that much further ahead. 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.
CNN
money.cnn.com
Bankrate
bankrate.com
MSN Money Central
moneycentral.msn.com
