Consumers have been warned throughout the recession that they need the highest possible credit score to qualify for the best loan rates and to be able to open up new credit accounts or apply for mortgages in the current lending environment.
However, people may not always be familiar with the things they need to do to protect their credit score, outside of obvious things like keeping on top of their monthly payments. In some cases, a low credit score can even affect one's ability to get a job, especially in an industry involving finance, and it can also result in higher auto insurance rates in some states.
A recent article in the Washington Post even noted that the Federal Housing Administration, which has been traditionally seen as friendlier to those with lower credit scores than private lenders, has proposed limiting its loans to those with a 580 credit score and a 3.5 percent down payment.
The newspaper also quoted an official with Nationwide Mortgage Services, Brad Sherman, as saying that people typically need a 740 credit score in the current lending environment to obtain the most favorable rates. The Post added that people who plan to borrow from Freddie Mac or Fannie Mae will see their interest rates determined along 20-point credit score brackets, with the rate falling as the score climbs.
With these things in mind, the Federal Reserve website offers some tips for people on how to boost their credit score. One of the most important tactics is to pay bills on time, since a single late payment can affect one's credit score for up to seven years. One way to ensure that bills are paid on time is to set up an automatic payment plan with a lending institution.
The Fed also reminds people to check their credit report, especially since federal law gives consumers the right to access this information once a year from each of the three leading credit reporting agencies.
Also, consumers are warned about the many credit-repair scams that could be directed at them. Such scams generally claim to be able to improve credit scores and wipe out debts, but tend to charge high up-front fees without delivering much other than deeper debt and greater damage to one's credit score.
Finally, keeping credit balances low and maintaining older lines of credit are also effective ways toward a better credit score.