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Feb. '99

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Money Savvy

Financial Finds

Improving Your Credit
Suppose you ran up several thousand dollars worth of debt as a college student. For a time, you couldn't even make the minimum payments, but you eventually paid off the entire balance.

Choose the statement that best describes your situation:

1. You are guaranteed the right to a low-interest-rate credit card.
2. You may have to pay a higher rate for your card.
3. You might get a credit card, you might not.

The answer is "c." Credit is not a right. Even if you have a clean record, it doesn't mean that you can get a card. Fair or not, that's the way credit works.

And you need credit. Your credit record determines not only how much you pay for your purchases, but also whether you can rent an apartment or a car, even get a job or a mortgage.

Credit depends not on your integrity, but on a computer-generated credit score that considers things like how much money you earn, how long you've been using credit, whether you've made payments on time.

The lender wants to know, "If I lend money to 100, or 1,000 or 10,000 borrowers with certain characteristics, will 90 percent or 95 percent or 99 percent repay?" Both the score and the statistics that go into the formula are top secret.

If you get a bad score and you're turned down for credit, you can't find out what pulled it down. Some things are obvious -- paying on time gives you more points than paying late. But a low income can give you a lower score, too. Critics say that this scoring system discriminates against minorities -- much like redlining in other industries.

So how do you improve your credit score? In The Ultimate Credit Handbook, Gerri Deitweiler offers a strategy: "The more you look like other people who pay their bills on time, the more likely the computer will approve your application."

Some of the factors that weigh heavily are stability -- both at home and on the job -- and good payment history. The scoring system looks at how close you are to the limits on your cards, what you spend money on, and how much you ask for in cash advances.

"But don't despair," Deitweiler says. "Even if you are in dt, you can rebuild your credit and improve your score."

If you have a lot of available credit out there, you can reduce your score by closing some accounts. But the best way to improve your score is to pay your bills regularly -- and on time.