improve your score

The interest rate you’ll pay for the money you borrow will be determined, in large part, by this three-digit number that’s generated from the information in your credit report. Most lenders have carved-in-stone rules about handing out terms, and those rules almost always place a major emphasis on your credit score. If their most competitive rates are offered to borrowers with a score of 700 or higher and yours is a 698, those two points could cost you thousands of dollars. 

If you’re thinking about buying a house or a car, your credit score is a very important number.

The interest rate you’ll pay for the money you borrow will be determined, in large part, by this three-digit number that’s generated from the information in your credit report.

According to www.myfico.com, the consumer Web site of the Fair Isaac Corp. that created the FICO score (the most commonly used credit score), the interest rate difference between those two scores is about one-third of a percentage point.

On a $165,000 30-year fixed-rate mortgage, that third of a percentage point could cost you more than $10,000 in interest charges over the life of a loan, (see Bankrate’s calculators). Fall below a 660 and the rate goes up nearly 1.0 percent.

Keep in mind that these are averages. Most lenders today practice tiered pricing, with interest rates rising as scores go down. Each lender chooses its own “break points” between tiers. One mortgage lender may bump up the interest rate if a score falls below 700, while another mortgage banker doesn’t charge higher rates until the score is 690 or below. So working with a lender that can help you develop behaviors that can raise your score and keep you in the sweet spot for the most competitive possible rate is vital.

This underscores the importance of not only doing all you can to improve your score, but shopping thoroughly for the right loan officer when looking for a great mortgage.

You can take steps to improve your credit score. The numbers of variables that play into an individual score make it impossible to say that one particular action will increase a given score by a certain number of points. But there are some good guidelines. According to Craig Watts, consumer affairs manager at Fair Isaac, “The mantra for getting a great score is pay your bills on time, keep account balances low, and take out new credit only when you need it. People who do that faithfully have very high scores. It usually means you’re being conservative and cautious about credit. Credit is not a toy and it shouldn’t be a hobby.”