Getting the best interest rate on a loan comes down to one important number: Your credit score.

Payment History   35 %

Amount owed   30%

Length of credit history   15%                     

New credit   10%

Types of credit used   10%

What Is It?

A credit score is a three-digit number generally ranging from 300 - 850. The higher your score, the better credit risk lenders think you are. And that means you'll pay lower interest rates on loans. That number can go up and down based on the way you handle your financial commitments. .

What helps your credit:

Making Timely Payments
The best way to improve or maintain good credit is to pay your bills on time. Payment history affects about 35% of your score

Developing a Credit History
If you don't have a credit card, get one and use it responsibly so credit bureaus can begin to track your payment history.

Simply charging $20 a month and paying it off each month over six to eight months will help establish good credit.

Not Maxing Out
Keep credit balances at 30% or below of your total credit limit. Maxing out available credit will reflect poorly on your score.

What hurts your credit:

Closing Old, Unused Credit Card Accounts to Up Your Score
A card that you've held for a few years is better for your score than one you've just obtained. Just don't use them. You can slowly close them over time.

Opening Credit Card Accounts for Better Credit Mix
It probably won't raise your score. The ideal mix is between secured loans, such as home or car loans, and unsecured loans like credit cards.

Shopping for a Loan for Too Long
A score distinguishes between shopping for a specific type of loan and a search for new credit lines, in part by the length of time over which credit inquiries from lenders take place. Compare rates, but try to pick a loan within, say, a two-week period. 

 Have You Checked Your Credit Lately?

 By law, you are entitled to at least one free credit report annually. This is different from your credit score. The credit-reporting agencies that offer your credit report free also offer online resources for ordering copies of your credit score — but most charge a fee for that additional information. For details, contact the agencies directly:

Equifax: 1800-685-1111

Trans Union: 1800-916-8800

Experian:1800-397-3742

 

CREDIT SCORES

CAN COST YOU

 A three-digit number, generally ranging from 500 to 850, a credit score can be purchased from each of the bureaus for around $15. The one used by most mortgage lenders is the FICO score, generated by Minneapolis-based Fair Isaac Corp. The higher your score the better. Take a look at the numbers, based on a home loan amount of $300,000, according to myfico.com.

30-YEAR FIXED MORTGAGE  

CREDIT SCORE                                    620 - 659            760 - 850  

ANNUAL PERCENTAGE RATE                   7.115%                 5.799%  

MONTHLY Payment                                 $2,019                 $1,760

 Source: myfico.com; interest rates accurate as of Nov. 16, 2007