credit

The secrets to improving your credit score

Highlights
  • Homebuyers with lower credit score pay higher rates or points.
  • Unpaid bills that go to collection agencies can lower your score.
  • Keeping an old account open can actually improve your credit score.

It's no surprise that the lower your credit score, the harder it is to get a loan and the more interest you'll pay. That's especially true today with the credit markets in turmoil.

Lenders of all kinds tolerate far less risk than they did last year. So to get the same terms you may have received in 2007, you'll need better credit. Today, home buyers with credit scores lower than 720 are required to pay more than the going rate for 30-year fixed rate mortgages or must pay points to get the best rates, says Jim Duffy, a partner with Phoenix Global Mortgage in Atlanta.

But it's not easy to achieve a score of 720. In November 2008, the national average credit score was 693, according to credit reporting agency Experian.

Beyond paying your bills on time and using credit judiciously, how can you improve your score?

First, pay your parking tickets.

That's just one of the surprising pieces of advice gleaned from mortgage and loan specialists who are experts on credit scores. Lenders read credit scores all day long. They know what sends scores into the tank and, alternatively, what boosts them.

Sometimes, the little things -- like unpaid parking tickets -- make a big difference, says Elizabeth Snyder, senior vice president and chief compliance officer at Leaders Bank in Oak Brook, Ill. That's because such unpaid bills can go to collection agencies, and anything in collection can lower your score.

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"Watch out for medical collection accounts and unpaid parking tickets that show up on your credit report suddenly," she says. "Sometimes taking a stand and saying, 'I'm not paying that parking ticket' can have a negative effect on your credit report."

Snyder and other specialists shared with us several other tips for boosting your credit score.

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