Your credit score determines the quality of offers you get, rates you pay
For a culture that runs on credit, this has been a year in which millions of vehicles have been stranded on the side of the road.
Sparked by a mortgage crisis caused by the housing bust, lenders are sorting out the "haves" and "have-nots" as the industry retrenches. So now is the time to tune up your record so that you have ample access to credit.
Like any competition, it's all about the score. The highest rankings merit the lowest rate and make the difference between getting a card, line of credit, or loan - and being denied.
Banks and other lenders have long since tightened the screws on mortgage borrowers. The squeeze is far from over in the credit-card arena as issuers trigger a new wave of restrictions.
Brian Shniderman, of Deloitte Consulting LLP in New York, says the industry is getting more selective.
"It's not just about the credit score," Shniderman says. "It's about balances, velocity of payments, and what's being bought. You have to be extremely good in doing your homework in selecting a card issuer."
The days of easy credit may be over for now. Deals that allowed you to transfer balances from a high-rate card to a low-rate provider are few and far between.
Gerri Detweiler, an adviser for the consumer website credit.com, is seeing fewer zero-percentage balance transfers, credit limits dropping, and more increases in finance rates - sometimes for no apparent reason.
"The industry is repricing parts of their portfolios for risk and profits," Detweiler says, "and even cardholders who pay on time will see some changes."
If you are looking for new lines of credit, search the Internet for the best offers. Terms can get confusing, though, so keep it simple: Choose the lowest-rate card if you maintain monthly balances and pick a no-annual-fee program if you can find one that matches your needs. No-fee offers can be best for those who pay within grace periods.
No matter what kind of credit you are seeking, you need to focus on your credit score. You may be able to improve it by cleaning up your record.
Your credit score is an amalgam of how much you have borrowed, your payment history, and how long you have maintained a record.
According to Fair Isaac, the firm that pioneered credit scoring, 65 percent of a score is determined by how much you have paid on time and the amount owed.
Surprisingly, neither income nor how many lines of credit you have weighs the heaviest on your score. Issuers want to know if you have been able to pay on a steady basis and there are no serious "delinquencies," such as bankruptcies, liens, collections, and foreclosures.
Creditors also like "aged" credit records, meaning you have been paying your debts over a long period of time.
It's essential that you not only check your credit record if you are looking for more borrowing power, but clean up any errors and pay off installment loans. You can check your report from all three major US credit bureaus at myfico.com.
Fair Isaac says any score exceeding 700 on its scale is very good and will probably qualify you for the lowest financing rates. Say you were borrowing $300,000 for a property. A top-tier score from 760 to 850 may get you a 5.79 percent, 30-year loan, translating into a $1,760 monthly payment. That assumes a 20 percent down payment and paying an additional percentage point, according to myfico.com. A score in the 500 to 579 range boosts the rate to 10.44 percent, or $2,731.
My philosophy of credit is to get it to pay you back whenever you can.
Every major airline, automaker, nonprofit, and retail chain has a card that offers so-called rewards.
Not wedded to one group, retailer, or airline? Look for flexibility. The Amex Blue card, for example, offers points for merchandise or travel on several airlines. There's no annual fee and no introductory finance charge for 15 months.
But there's a catch to credit payback deals: You need an above-average credit record to get one of these cards and they carry higher rates than nonrewards programs.
John F. Wasik is a Bloomberg News columnist. He can be reached at jwasik@bloomberg.net.
