subject: Do You Really Need A Perfect Credit? [print this page] The need to build a good credit or striving for a high credit score is something we always hear all the time. A higher credit score gives you the bargaining power or advantage over your creditors, allows you to ask for better rates, and instantly get an approval. But do you really need a perfect credit score? Will a few points make a difference?
Understanding the FICO Scoring System
Today, the three major credit bureaus, lenders, insurers and most financing companies use the FICO score in determining one's credit worthiness. The FICO score ranges from a very low of 300 to a very high of 850. Let's consider how your FICO score is calculated and how it can affect your status as a borrower in the eyes of your creditor.
Lenders have different standards in measuring a prospective client's credit worthiness. Some creditors already consider 775 to 850 as an excellent rating while others consider 750 as the barrier for an excellent credit.
So do you really need to reach a perfect score of 850 just to be considered as an excellent borrower? Technically, no. As long as your score falls in between 700 to 850, you will be getting the same rates that are given to people with excellent credit. In fact, statistics prove that it is very rare for someone to achieve the perfect credit score of 850.
Nevertheless, if your credit score falls even just one point below 700, you will be charge with rates that are given for people with average credit. In this case, you want to make sure that you improve your credit at least a few points above what is considered as excellent score.
Maintaining a Healthy Score
So the next question is, how can you keep your credit score in safe range? Aside from watching your payment habits, keeping a close eye on your credit limit use is crucial. Ideally, you should only use at least 25% to 30% of your allowable credit. Reaching 50% or going beyond that will really begin to hurt your total credit score. Try to keep your credit usage up to only 30% or less.
Obtain only a few credit cards. Some people have the notion that owning multiple credit cards boost their credit standing. According to the Consumer Credit Counseling Services, this maybe impressive to other people but for lenders, too many credit cards in your account may create a negative impression. Why so?
More credit cards means more risks of incurring debts, uncontrolled spending, and exceeding credit limits. So if you already own one or more credit cards, focus on maintaining those accounts in a good standing.
The value of paying your credit card bills on time cannot be overemphasized. According to credit score experts, a single late payment can cause your credit score to drop by as much as 100 points. Don't take that risk. Always be conscious of your payment dues and as much as possible, pay them on time everytime.
Finally, keep an eye on your credit report by ordering a copy of your report at least twice a year. This way, you can be sure that all your payments are reported accurately and that no unauthorized charges are being billed in your account. If you notice any sign of fraud or found a slightest error in your report, notify the credit bureau and the appropriate creditor immediately.
Copyright (c) 2009 Suzy Vanstrusen
by: Suzy Vanstrusen
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