Simple ways to raise your credit score

Consumers often are unaware of their credit scores, but giving it some attention could save you thousands on a mortgage.

By G. Jeffrey MacDonald | Correspondent of The Christian Science Monitor

from the July 2, 2007 edition

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For house hunters aiming to take advantage of today's soft real estate markets, one mysterious number is becoming increasingly fateful – and it's not the seller's asking price.

A credit score, calculated to tell companies whether a consumer is likely to pay bills on time, is taking on more significance in an era of mounting defaults and foreclosures. On a scale of 350 to 850, scores in the 500s were good enough to secure a mortgage just last year. But now, any score below 600 is almost always a deal breaker, according to Jay Brinkmann, vice president of research and economics at the Mortgage Bankers Association, a national trade group for lenders.

"It's very important in terms of the initial look" at a loan application, Mr. Brinkmann says. "If you don't have a good credit score, some of the other factors need to be stronger. If you have a very high credit score, then some other things are just not all that important."

For people who do qualify for a loan, high credit scores can blunt the pain of interest rates, which have been rising in recent weeks. According to Fair Isaac Co., whose FICO credit score represents an industry standard, raising one's score from 550 to 720 produces savings to the tune of $131,000 over the life of a 30-year, $150,000 mortgage. Monthly payments, if initiated in late June, would have been 27 percent less for the borrower with the 720 score.

On June 29, federal regulators issued tougher lending guidelines, prompting the Mortgage Bankers Association to warn that the new rules will "constrain consumer credit choices."

For many Americans, credit scores remain mysterious. Forty-five percent don't know their credit score and 32 percent have never checked their credit reports, according to poll results released last month from Bankrate, an online aggregator of consumer financial products.

Beefing up a credit score is sometimes as simple as making a couple of calls or filling out a form. Yet lots of consumers opt to forego even the easiest of steps, according to Linda Tucker, director of education for Consumer Credit Counseling Service (CCCS) in Arkansas, a nonprofit outreach to people with credit issues.

"A lot of them do live with their heads in the sand," Ms. Tucker says. "They'd rather not deal with it."

For those willing to pick some low-hanging fruit, however, experts have suggestions for where to find the biggest payoffs with relatively little effort:

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