A good credit score matters a lot now if you're in the market for a home loan and don't want a 10 percent interest rate. Lenders are much, much pickier than they were before being hit by the foreclosure wave.
Two years ago, a 620 FICO score was enough to get the best mortgage rate, says John Ulzheimer, president of consumer education for Credit.com, a financial services and consumer education firm. Nowadays? The 700s.
His top score-improvement suggestion: "Never ever give a lender a reason to say anything bad about you to the credit bureaus."
In other words, pay on time. Really on time. A 30-day-late ding on your credit report means you were late by as much as 30 days or as little as one, he says. A lender might not report you for day-late behavior, but why gamble?
Ulzheimer, who used to work for Fair Isaac Corp., developer of the FICO scoring formula, also says:
* Aim for balances of no more than 10 percent of your credit-card limits. Better yet, pay off your cards every month, he says. You look like a riskier proposition to lenders the closer you creep toward your credit limit.
* Don't apply for credit cards willy-nilly, particularly store ones, never mind the "10 percent off" come-ons. Every time you apply, the company asks for your credit report, and those inquires count against you for the next 12 months, he says. "Don't ever use your credit report as a 10-percent-off coupon at the mall," he says.
* On the flip side, don't avoid credit entirely or you won't be building a credit history. He also suggests against shying away from holding several cards merely in the hopes of improving your score. "You should have as many cards as you need to operate efficiently," says Ulzheimer, who has six. The older your credit history, the less your score will be negatively affected by multiple cards, he says, and the more you're able to vary your usage based on which are offering the best terms at the time.
Yes, yes, you say, but what about people who already have black marks on their credit reports - late payments, tax liens, repossessions, foreclosures, bankruptcies?
The more recent the problem, the more it affects your score, says Barry Paperno, consumer operations manager with Fair Isaac. Eventually, it goes away entirely.
"Negative information, by law, for the most part cannot stay on your credit report for more than seven years," Paperno says.
Federal law gives you the right to a free copy of your credit report once a year from each of the three national credit-reporting agencies (Equifax, Experian and TransUnion). Go to annualcreditreport.com for details.
Those reports won't tell you your credit score, but they will show information influencing it. If you want the score, you'll have to buy it. Fair Isaac, for instance, charges $15.95 for a FICO score from one of the credit-reporting agencies (that's $47.85 for all three). The company's myFICO site, myfico.com, has more information.
Ulzheimer suggests you look at your credit reports and, if they're very similar, buy just one score.
He recommends against using credit-repair companies to try to improve your standing. It's not worth the money, he says. If there's inaccurate information on your credit report, you can dispute it for free to the reporting agency, which must investigate promptly, usually within 30 days. The Federal Trade Commission has more details at ftc.gov/bcp/conline/pubs/credit/repair.shtm.
If the negative information's accurate? Time - and better money-management strategies - should heal your score.
To see last week's column, the first of this two-parter on credit scores, go to baltimoresun.com/realestatewonk and click on "How-to Mondays" under Categories.
Find Jamie's blog at baltimoresun.com/realestatewonk.