Your credit score can either save you money or cost you money. According to myFICO, a 100 point difference in your FICO score could mean over $25,000 extra in interest payments over the life of a 30 year mortgage on a $300,000 home loan.

Thus, if you have a low credit score, it may be in your best interest to take proactive steps to boost your score to the higher scale – preferably above 740 mark as those with a score of 760 – 850 are more likely eligible for the most favorable interest rates.

What can you do if you are on the lower end of the credit rating scale? And how can you raise it up to avoid paying higher interest rates or having your application rejected outright?

This video below offers some excellent tips on how to raise your FICO score. It is a short video worth watching if you care about your score.

The Fair Credit Reporting Act (commonly referred to as the FCRA) is a US federal law which forms the base of consumer credit rights in the United States.

Because your credit report contains private information about you, it’s vital that you understand your legal rights as a consumer and aware of all your options. This law regulates what can be reported on your credit report, who have access to your sensitive credit information and what uses can be made of it.

Information That Can Be Included in Your Credit Report

1. Your identifying information
2. Your employment/salary information
3. Credit information (applications for credit cards, payment history, etc.)
4. Public record information
5. Late payments reported by utility companies, hospitals, landlords and others
6. Overdrawn accounts reported by banks
7. Late credit card, auto loan, mortgage payments reported by banks
8. Delinquent child support payments
9. Debts being collected by collection agencies

Information That Is Not Included

1. Your race
2. Your religion
3. Your current health or medical history
4. Your driving record
5. Your criminal record
6. Your political preference
7. Notice of bankruptcy (Chapter 11) that is more than 10 years old
8. Debts that are more than 7 years old

Source: SUMMARY OF YOUR FCRA RIGHTS

Here’s the summary of your rights under the Fair Credit Reporting Act:

1. The law gives consumers the right to see what is included in their credit report. Previously, the credit reporting agencies were sharing consumer credit history with financial institutions, and consumers were by and large left out of the loop. The law creates more transparency by allowing us to receive and monitor what’s in our credit reports AND see who has received a copy of the report or inquired about it
2. The FCRA restricts who can access our reports and who can’t. Not just anyone is allowed to do a credit check on you. The law mandates that an entity must have a clear permissible purpose before having the right to pull your credit history.
   Here is a list of potential entities who may be able to pull your credit report under certain circumstances:
   • Whenever you request for a loan or apply for a credit card, you give the potential lender or credit card company the ability to pull you credit report.
   • Utility providers and cell phone companies may be able to run a credit check on you when you apply for new service. Because they are extending you a monthly service, they want to make sure you have a positive history of paying back your debts.
   • Employers, landlords, and insurance companies all may be able to check your credit if you apply for a job, an apartment, or a new insurance policy.
   • A court of law can also issue a subpoena for your credit history if relevant to a lawsuit.
   • Also, a state or local child support enforcement agency has the right to pull a parent’s credit report to establish ability to make child support payments.
   • Lastly, you have the right to review your own credit report at any time. Pulling your own credit history will have no effect on your score.
3. The FCRA also entitles you to accurate representation of your credit report. What this means is that if there are any errors or fraud on your report, you are legally entitled to report & dispute inaccurate information on your report to the credit bureaus or your creditors who thus in turn have the legal responsibility to remove the mistakes usually within a 30-day time frame.

An amendment to the FCRA is the Fair and Accurate Credit Transactions Act of 2003 (also called FACTA or the FACT Act). The FACT Act ensures that you as a credit consumer have access to information that lenders, insurers, and others obtain from any of the credit bureaus.

This new law specifically gives consumers the right to a copy of free credit report once every twelve months from each of the three nationwide credit reporting bureaus – TransUnion, Equifax, and Experian.

A lot of people are interchanging the term FICA score with FICO Score.  Many people misspell and mix up FICA and FICO. But there’s a big difference between the two.  Let me show you.

Firstly, there is no such term as a FICA score. Although FICA does exist, it is the abbreviation for Federal Insurance Contribution Act, it has nothing to do with FICO and credit scores.

FICO, on the other hand, is the abbreviation for Fair, Isaac and Company, the company that first started credit scoring system in 1958 and used widely today to evaluate a borrower’s credit worthiness.

Understanding FICO Score

Now that we’re clear with the confusion between the two. What exactly is a FICO score? What is a Good FICO score?

FICO score is a 3-digit numerical index which represents an estimate of your financial credit worthiness. It is the most important number lenders used to determine who qualifies for a loan, at what interest rate, and to what credit limits.

It is based on a subset of the information in your credit report, typically from the three major American credit bureaus: Equifax, Experian, and TransUnion. Though the scoring system used by all three credit bureaus are different but all point to one conclusion and that is whether or not you have good or bad credit.

Creditors or lenders, such as banks and credit card companies, primarily use FICO scores to determine credit limits and interest rates every time when you apply for new credit card, mortgage, auto loan, personal credit line or any other credit issues by the bank. This scores have proven to be very predictive in assessing the creditworthiness of a person or the likelihood that person will pay his or her debts.

FICO Score Scart

FICO score ranges between 300 to 850. The higher is your credit score is, the lower the risk is to the lenders and the easier you’ll obtain a loan, so to speak. A low score, such as 500, could result in much higher interest rates or having your application rejected outright. Conversely, those with a credit score of 760 – 850 would get the most favorable interest rates.

The following FICO Score Chart may help you to determine where your score is in relation to others.

What’s In FICO Score?

A credit score can be broken down into 5 components, some carry more weight than the others.

Since the bulk of your credit score comes from your payment history and the amount you owe, it’s important to keep a healthy balance and ensure that you always make your payment on time.

What is a Good FICO Score?

If your credit score is on the low side, loans can be tough to obtain and can cost you thousands of dollars in higher interest rates more than they would if you had a decent score. Needless to say, getting mortgage with a 560 credit score is almost impossible nowadays.

According to Providian Financial executive J. Christopher Lewis, consumers could save $16 billion just on credit card finance charges if they raised their average score by 30 points.

In general, your FICO credit score represents the likelihood that you’ll pay your debts or default on your loan. A low FICO score means banks and other financial institutions may deny credit, charge higher interest rates, demand more collateral, or require extensive income and asset verification.

As such, every credit and lending decisions are based on an individual’s FICO score. It’s one of the most important factors to evaluate how much risk you are as a borrower.

If you are thinking of applying for a loan, it will be a good idea to first check where you stand on the credit score scale as where you’re on the scale can have a huge effect on the interest rates you’ll get and your ability to borrow money.

Your credit score has a huge impact on your loan application. It is a very important number lenders use to determine whether or not you’ll qualify for new credit, and at what interest rates and terms of credit. Those with the highest scores get the lowest interest rates.

Back in the good old days, 620 was considered a decent credit score but in the post crisis economy (and most lenders continue to tighten credit requirements), even a 720 credit score isn’t good enough to get the best loan terms. These days, lenders typically demand a FICO score of 740. (Please refer to the FICO Score Chart)

According to myFICO, a 100 point difference in your FICO score could mean over $25,000 extra in interest payments over the life of a 30 year mortgage on a $300,000 home loan.

What can you do if you are on the lower end of the credit score scale? And how can you raise it up to 740?

Well, there are a few things to can you do right now to raise your credit score by 100 points (or whatever number you have in mind).  In fact, these are do it yourself credit repair tips that could easily save you a significant amount of money. Without further ado, let’s review the other possibilities.

#1 Check your score periodically for errors

Don’t assume that the information on your credit report is error free. That’s why it pays to review and make sure everything is up-to-date and accurate.

Here’s the good news. By law, you’re entitled to for free credit report from AnnualCreditReport.com once a year; keep in mind, though, that this free report only shows your credit history, not your credit score.

The following are possible errors which you can be fixed by way of dispute

• Accounts that aren’t yours due to possible cases of identify theft.
• Reports of late payments when you have already paid on time.
• Bankruptcies older than 10 years or accounts that are listed as still due.
• Other negative information that’s older than 7 years.

If you uncover any error, you can file dispute it by writing a letter to the bureau and requesting that the negative entries be removed. Though each credit reporting agency has its own rules regarding challenging the incorrect information. While it might seem like a daunting task, you’ll be glad you did.

Another tactic you can use to clean up your credit report is to dispute a negative item even if you believe it is accurate. Unethical? It works sometimes.

#2 Pay your bills on time

Your score is very sensitive to whether you pay your bills on time. One missed payment could lower your score significantly. In fact, missing just one payment can lower your credit score by as much as 100 points. So stay on top of your credit card, loan, and utility bill deadlines.

If possible, set up automatic payments that take an amount you specify every month from your checking account, making at least the minimum payments. Don’t blemish your credit report with late payment.

#3 Lower your debt-to-credit ratio

Try to keep a low debt-to-credit ratio – the ratio of your credit card balances to credit limits, meaning that if you own a credit card, your card balances should be only a small fraction of your available credit. For instance, if you have a limit of $1,000, your balance should stay well under $300.

Aim to keep your balance below 30% of your limit on each card or if you’re a customer with a good history, ask your current credit card issuers to raise your limits. Most will oblige.

Most lenders look at both your total debt-to-credit ratio as well as the debt-to-credit ratio of each credit card, the less you utilize your credit, the better. Do your best to maintain favorable ratios for both.

#4 Don’t apply for new credit unless necessary

Though new credit is the least important factor in your score, it is still an important issue to consider. Unless it is necessary, don’t open credit accounts you don’t intend to use as it will lower your credit score.

This is because it has been statistically proven that those acquiring more credit are a bigger lending risk than those who are not. Make sense?

Last but certainly worth a mention is that the length of your credit history accounts for 15 % of your score. Those with long, established credit histories fare much better than those who are just becoming financially established. Sure there is little you can do about this, except to maintain a solid track record of using borrowed money wisely by sticking to the above tips.

In summary, your credit score can either save you money or cost you money. Therefore, if you have a low credit score, it may be in your best interest to take proactive steps to raise your score to the higher scale (preferably above 740 mark), even if that means you put off applying for a loan.

Failing which could easily cost you hundreds or thousands of extra dollars paid for higher interest rates, especially when you go to apply for a large loan, like a mortgage. After all, when it comes to mortgages, auto loan and credit cards, the higher your score, the lower the interest rate you’re going to pay.

It is therefore upon you now to see to it that you maintain the only score that matters. It might not be easy and it won’t happen over night. It takes discipline, sacrifice and patience, but the results will be worthwhile.

You may seek advice from financial advisers on how to rescore it, but ultimately you play the biggest role by sticking to the advice and most importantly, taking action.

Qualifying for a mortgage is getting more difficult in today’s recessionary economy. In many cases, a low credit score of 560 will prevent you from qualifying for the mortgage you want.

Though the lowest credit score scale required for a mortgage is 620, it doesn’t mean owning your dream home is impossible. Sure you can be approved for a mortgage with a 560 credit score, but be prepared to pay a significantly higher interest rate as most lenders have to cover the risk of loaning to someone on a low credit score scale by charging a higher interest rate.

A credit score of 560 equates to high risk, so compared to someone with a score of 700 (and above which is considered a good score that yield favorable interest rates), you have to pay as much as 4 percentage points or more in higher interest rates.

The True Cost of Low Credit Score

Source: MyFICO (Interest rates accurate as of March 26, 2010)

According to MyFICO, a division of Fair Isaac, a consumer with a FICO score between 700 and 759 might get a 4.981% rate on a $200,000 30-year fixed mortgage loan while those with a score between 620 and 639 might get a 6.348% rate on the same loan.

As you can see from the above table, an interest point or two make such a big difference in the price of the house. It means saving thousands in finance charges and a lower monthly payment. From the above example, paying an interest rate just 1½ point higher means paying an additional $200 each month on your house payment on the typical $200,000, 30-year mortgage loan. That’s at least $72,000 more you’re going to pay for your house!

Therefore, if you have credit score of 560 or lower, it may be in your best interest to wait until your scores improve. Failing to take steps to improve your score could easily cost you hundreds or thousands of extra dollars on your mortgage.

How to Get a Mortgage with a 560 Credit Score?

On the other hand, if you decide to get a mortgage with a 560 credit score, here are some possible steps you can take

1. Offer a larger down payment so that you aren’t borrowing so much money
2. Lower your debt-to-income ratio by paying off as much debt as you possibly can before applying for a mortgage loan in order to increase your credit score
3. Don’t buy a car just before applying for a mortgage loan as it lowers your credit score
4. Deal with a lender that specializes in bad credit mortgages
5. Get a 3-1 credit report from the 3 leading credit bureaus and check for any update or error
6. Most importantly, take proactive steps to fix your credit score

When it comes to credit score, you could frequently get baffled since lenders and companies providing loans might use its own custom scoring model with a different scale. Many others can relate to such a confusing experience.

One might think his credit score is good enough and be surprised when his credit application is rejected by a certain lender because of a different model of credit score assessment.

Amidst the confusion going on lately about different types of credit score scale, let’s compare two most widely used credit scoring models; i.e. Vantage Score and FICO Score (Fair Isaac Corporation Score) of which the latter is often confused with FICA Score.

The fact is, though there are only some minor variations in the formulas; it’s unlikely that they produce the exact same number from the same credit information. The Vantage Score is based on six variables, versus the five variables used by FICO score. (see the comparison of the two below)

Vantage Score

Vantage Score is the newest credit scoring model which in direct competition to the classic FICO model. The methodologies of vantage score are developed by VantageScore Solutions LLC, an independent corporation owned by the three leading credit bureaus, i.e. Equifax, Experian and TransUnion.

It is said the current FICO scoring model made it difficult for people with “thin credit lines” to get credit. Thus, the need of an alternative model to better access borrower’s creditworthiness with greater accuracy.

FICO Score

It is a credit-scoring model invented by a California headquartered company, Fair Isaac Corporation (FICO). Some refer to FICO scoring model as the classic and universal credit scoring model because it has been used widely long before Vantage scoring model came into existence.

The model utilizes particular standard scale for different factors and broadly accepted as a base platform by every company involved in credit reporting business.

Vantage Score vs Classic FICO

The following table lists a number of evident differences between the two credit scoring models.

Vantage Score was designed as an alternative to FICO credit scoring model to determine one’s creditworthiness. Yet, up to now, the standard score used by most lending institutions is still the classic FICO score.

It is therefore advisable that you always pay attention on what scoring model used by the lender so you can better interpret your score correctly before you make any loan request.

Useful Tip: Since top Vantage Score is 990, in contrast to the top FICO score of 850, you could multiply your Vantage Score by 0.86 (850/990) to get a rough approximation of your FICO score.

Perhaps the question you’ve always been asking yourself is “What is considered a good credit score?”

Well, there is no stipulated pass or fail mark in regard to credit report, but creditors have set 700 to be a good credit score. Thing is, 60% of Americans are capable of achieving this, hence shouldn’t be difficult for anyone else.

Make a habit to review your credit report and always endeavor to get a credit score of above 700, as that is what is ideal for creditors. Now that you know how to read a credit report and understand the three figures that appear on it, you can improve your credit score by ensuring you pay your outstanding debts on time.

Ways to Improve Your Credit Score

Understanding your credit score scale and taking the right steps to get your score in the higher ranges are vital to your overall financial health.

Here’s a list of ways to improve your credit score

1. Always pay your bills on time
2. Keep your balance low in relation to your available credit – 35% or lower is ideal.
3. Make more than the minimum payment
4. Pay off credit card debt rather than moving it around to other cards
5. Don’t open a lot of new accounts over a short period of time, especially if you have a short credit history
6. See your Credit Score for $0 at CreditReport.com

Keep in mind that your score can change from time to time, therefore it’s recommended that you monitor your scores and credit reports regularly – at least once a year – whether or not you plan to apply for a loan.

And it’s equally important to take every possible steps to improve your score and be proactive to keep the score above 700 which is considered a good credit score.

The question many people are asking is what is a good credit score and how easy is it to achieve such a score? Considering the fact that 60% of Americans have managed to achieve the score, it makes it very easy for everyone.

For you to be eligible for a loan that you will pay back with a fair interest rate, pundits in the credit world advice that a good credit score range should be 700 and above.

Each lending institution has its own unique way of measuring a credit score. Conversely, even though it is said that 700 is the best score, there is no set amount to clearly define a good credit score.

The secret lies in remitting your debts and bills on time as you will avoid paying late fees, which tend to impact negatively on your credit report.

Sadly, many people fail to go beyond 700 credit score, not because they don’t pay monthly minimums on time, but because they can’t resist the temptation of not exceeding their credit card limit.

They argue that they can pay the monthly minimums and get away, but the interest incurred is what makes the difference. When payment is delayed, it will be marked “unpaid“, and will then reflect permanently on your credit report.

Finding yourself in a credit debt could easily have been avoided if you could have observed your expenses. The only way out therefore is to do all you can to offset the debts, whether it means cutting down on expenses, selling off some valuables, working overtime or better still getting a second job. You can even seek assistance from relatives and friends, at least you will be guaranteed of no interest charge.

The biggest problem Americans are facing today is housing crisis and if you are one among the many who are unable to pay for it, be sure it has a negative impact on your credit score. Having established what a credit score is, it therefore is upon you to see to it that you maintain a good score. You may seek advice from financial advisers on how to do it, but you play the biggest role by sticking to the advice.

The 700 score is just an acceptable figure established through out the years – by looking at the trends at which most lending institutions applied while evaluating loan applications. Until a particular figure is standardized therefore, everyone should strive to attain the 700 and above mark which is thought to be a good credit score range.

Find out more on how you can improve your credit score (by 100+ points) on your own.

If you are thinking of applying for a loan, it will be a good idea to first check where you stand on the credit score scale.

Why? Because knowing where you are on the scale can have a huge effect on the interest rates you’ll get.

Generally speaking, the higher your score is, the lower the risk is to the lenders and the easier you’ll obtain a loan of any sort. While a low score could result in much higher interest rates or having your application rejected outright.

Understanding credit score scale

As people are becoming increasingly dependent on credit, neglecting the importance of credit score can be very costly. This magical number says a lot about your credit worthiness. It can either save you money or cost you money.

In fact, getting loan of any kind is almost impossible nowadays without a decent score. That is why it is important to understand the credit score scale, what is considered a good credit score and where you are on the scale.

I have seen someone ignorant of his credit score and was rejected for a loan application for the umpteenth time as no lender was willing to take the risk to loan any amount to him. And even if he were to get the loan, the interest is likely to be significantly higher as the lenders will want to offset the risk of lending due to his poor credit score. See the true cost of a low credit score.

In laymen term…

Credit score is a 3-digit rating that shows your likelihood to repay the loan you borrow in a definite length of time. Before giving out the loan, your lenders request a credit report from one of the three credit reporting agencies such as Experian (formerly known as TRW).

This credit report reveals your personal information, financial history and of course how well you manage your debts and finance in the past (see also TRW credit report). Basically it implies how wisely you have used credit in the past and how likely you’ll continue to do so in the future.

Your credit score is computed based on a subset of information within your credit report which a lending institution will use along with other factors when determining the risk factor when you apply for a credit card or request for a loan.

Although by law, you’re entitled to receive a free copy of your credit report annually, this free report will not reveal your actual credit score. In order to review your actual score to see where you are on the scale you will have to pay a fee to obtain your score.

Crucial issues that largely impact your credit score

In general, how excellent your credit score depends on the following factors, though some carry more weight than the others

1. Payment History – 35%
2. Total Amounts Owed – 30%
3. Length of Credit History – 15%
4. New Credit – 10%
5. Type of Credit in Use – 10%

Decoding credit score scale

Note that your credit score may be different from one institution to another as the scoring system used by all three credit bureaus are different. For instance:

• Equifax : BEACON Scoring Model
• Experian : Fair Isaac Scoring Model
• Trans Union : Empirica Scoring Model

However, the three leading bureaus above have agreed on using a collaborated new scoring model called Vantage Score which uses a number range (501 to 990), which is different from FICO score (that uses a scale of between 300 to 850). Just like a student, you’ll be given A-F score. A is the best while F the worst.

Here’s the letter grade and its related score range

While a little competition is a good thing for the consumers, the most widely used scoring platform is still the classic FICO. Whether it will arise further confusion or otherwise, Vantage Score will likely coexist alongside the FICO Score for many years to come. See more comparison between Vantage vs FICO Score.

That said, if your credit score based on FICO scoring model is somewhere around 700, you simply have nothing to worry about because it is generally assumed that a decent credit score ranges from 660 to 700 – given the fact that the current median score in the U.S is 723.

Otherwise, it always pays to improve your score and move up the rank within the scale before applying for a loan. Remember, any financial decision you make today may affect your credit tomorrow.