Photo of a credit score chart.
There are benefits to improving your credit rating. CC by Casey Serin/Flickr

Having a good credit score means a lot more than it used to. The credit crunch has raised the bar on credit scores. It’s getting hard to qualify for a loan, let alone a loan at a reasonable interest rate these days. To do so, most people will have to raise their credit scores. A good credit score saves money. Lower credit scores are harmful to a person’s finances. They make credit cost more than it has to. A FICO credit score of 650 is considered fair to poor. Numbers in the 750 range are looked upon as respectable. A rare breed of consumers work to pass the 800 mark. A man in Arkansas is doing everything he can to achieve a perfect FICO credit score of 850. The payoff for his dedication could be a retirement free of financial worry.

An 850 FICO score is a big deal

A scant one-half of 1 percent of people in the U.S. have hit the 850 mark, FICO says. Chris Plepinski of Rogers, Ark., was featured in a CNN article about his plan for joining that exclusive club. Plepinski’s current FICO score is higher than 82 percent of the population at 813. Plepinski is destined to save a lot of money in the future, thanks to his stratospheric FICO score. But CNN reports that Plepinski won’t be satisfied until he hits 850. To do that he studies every factor of a FICO score in detail. On a quarterly basis he re-evaluates his FICO position. To get as many points possible, Plepinski tweaks his financial behavior accordingly. A few years ago he added an auto loan to his credit mix, instead of paying cash, which he could have, as a tactic to increase his FICO score.

Basic facts about FICO scores

A FICO credit score is distilled from credit report data collected by the Equifax, Experian and TransUnion credit bureaus. FICO scores, according to Bankrate.com, are reported as low as in the 300s. The figures are arrived at by evaluating these factors: Payment history (35 percent), total debt load (30 percent), length of established credit (15 percent), types of available credit (10 percent) and recent new credit (10 percent). Based on those factors, tips for raising credit scores include always paying on time, making up missed payments, maintaining low credit card balances, paying off debt instead of transferring it, not applying for new loans or credit cards and not closing existing credit card accounts.

The long-term benefits of higher credit scores

A fair-to-poor credit score can cost a fortune over a lifetime, according to Liz Pulliam Weston at MSN Money. One person muddling through at 650 was contrasted with an individual who enjoyed a 750 score. Weston ran numbers on the disparity of interest each could expect on such transactions as student loans, auto loans, credit cards, mortgage loans and home equity lines of credit. Fast forward 50 years, and the lower credit score got hit with $201,712 more in interest payments. For emphasis, Weston went further. She split $201,712 into 50 years and factored an 8 percent return on that money. A total of $2.3 million for retirement could result by investing the amount of interest saved by the higher credit score.

Sources

CNN: http://www.money.cnn.com

Bankrate: http://www.bankrate.com

MSN Money Central: http://www.moneycentral.msn.com

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