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Give Yourself Some Creditby Scott MillerBLOOMINGTON -- Two of every three Americans don't know the credit score needed to secure the lowest interest rate on a mortgage, according to a recent survey by GMAC Mortgage. The result illustrates an important fact: people who are ignorant of their credit score and what it means, can pay hundreds, even thousands, of dollars annually in extra costs. "The better your credit score, the less you pay," said Jeff Telling of Family Credit Counseling Service in Normal. Credit scores are grades given people based factors including how well they repay their bills and debts, and their total borrowing history. Lenders then use the scores to decide things like mortgage rates, credit limits and eligibility for other loans. The score needed to determine the lowest interest rate on a mortgage? It's 620 -- but only 38 percent of the people surveyed by GMAC, a national lending company, knew that. And the consequences of a low score can be costly. In the case of mortgage rates, a score of 600 instead of 620, for example, equals about a half-percent difference on an interest rate for a $150,000, 30-year, fixed-rate loan, said Telling. In other words, the person with the 20-point lower credit score pays $54 more each month for the same home, he said. "The rate you pay on an insurance policy can be affected by your credit score," Telling added. "That sounds ludicrous, but everybody's watching." Many factors influential Credit scores are calculated by private firms. On most scales, Telling said, 850 is perfect and 350 is low. In determining a score, the firms consider a range of factors. Too many credit cards can pummel a personal credit score, but not having them can hurt, too. Abruptly closing a credit account also can damage scores, but so can keeping cards open without using them. The first step a person who wants to improve their credit score should take is to obtain a free copy of their credit reports from Experian, Equifax and Transunion, the three major firms that calculate scores. Telling advised people to double check information for accuracy -- including what lenders are reporting. Also, make sure the lenders report your credit limits along with the amounts borrowed, so credit doesn't look overextended, Telling said. A lender left that information off a woman's credit report in Maryland, Telling said, Her credit was great, but it looked as though she had extended her limit. Her credit score dropped 66 points, he said, costing her $150 each month in mortgage interest. Telling also advised people not to borrow more than 50 percent of any credit card limit. He and others also cautioned people against having too many credit cards. "They say people should only need to have two credit cards," said Vicki Huddleston, manager of Budget Counselors Plus Inc. in Bloomington. "People should not keep a balance on their cards," she added. "Pay it off every month." Repairs can be difficult Huddleston's agency helps people with trouble repaying unsecured debts -- such as credit card and medical bills -- by working with lenders to set up a repayment plan. "A lot of time we can get lower interest rates and lower payments. There is a monthly fee. Of course, it does depend on their situation," Huddleston said. Despite common thought, working with such agencies does not blemish credit histories, it helps them. "Debt management with a certified credit counseling agency does not hurt your credit history at all. That's a myth," Telling said. Finally, it's easier to maintain good credit than repair bad credit. The journey begins in college, possibly even high school, said S.J. Chang, a professor of finance at Illinois State University. He suggests young people get small loans on small purchases such as computers. "That's usually a starting point to build good credit. Student loans, that's another route you can start building your credit, by paying it on time," he said. And ultimately, a person's credit score can have a strong influence on their lifestyle. "Better life means better credit. Your whole way of life is related to good credit and wise spending," said Chang. "People have to buy cars, houses, refrigerators. They have to think about their own, their children's education. No one will be able to pay for all of these things with cash on hand every time." Article Reprinted Courtesy of The Pantagraph 
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