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Friday, April 09, 2004

By Patricia Sabatini, Pittsburgh Post-Gazette

Next time you see one of those enticing offers to open a store credit card for an instant 10 or 20 percent off your purchase, pass it up.

That's the advice of Stephen Snyder, a former credit addict who says his trip through bankruptcy in the early 1990s taught him lessons about credit scores vital to anyone interested in getting the best rates on everything from mortgages to car loans to credit cards and insurance.

Snyder, author of the just-released book "Do You Make These 38 Mistakes With Your Credit? " says even little errors can eat away at your credit score and cost you big bucks.

Credit scores are widely used by lenders to judge your risk as a borrower. They range from a low of 300 to a maximum of 850. The higher the score, the better.

Each time you apply for a credit card, it triggers an inquiry into your credit history, lowering your score by up to 12 points, says Snyder, who amassed more than $1 million in debts before his bankruptcy and now makes a living conducting seminars to help fellow bankruptcy filers quickly recover their financial dignity.

"With some mortgage programs, that point spread can take you from a no-money-down loan to a 5 percent requirement," he said. "So that one credit inquiry could put you in a whole different league when getting a mortgage."

Accept one of those instant card offers a dozen times, and you could cut your score almost as much as the "atomic bomb" of credit killers -- personal bankruptcy -- which can savage your score by some 100 to 200 points, Snyder says.

Is there an optimal number of credit cards people should carry?

"Three or four card accounts managed well over time," he said.

You can check your credit score at the three national credit bureaus (TransUnion, Equifax and Experian) by ordering a report for $39 at www.myfico.com, the Web site for Fair Isaac Corp., which developed the industry-standard FICO credit score. Snyder says he receives periodic training from Fair Isaac to stay updated on the latest credit scoring practices.

You'll want to see the scores from each of the credit bureaus because not all lenders report your payment history to the same bureaus. That means scores usually are different at each one, Snyder says.

A new federal law expected to kick in late this year or early next year will entitle consumers to one free credit report annually, but it's not clear yet if the report will have to include a credit score, Snyder says. Details are still being worked out by the Federal Trade Commission.

Consumers generally need a score of 720 or above to get the best rate on a mortgage, Snyder says. When it comes to credit cards, "anything over 700 and you're golden."

The average credit score nationally is 678, according to Experian. In Pennsylvania, the average is slightly higher at 696.

According to myfico.com, the difference between having an excellent credit score and a poor one (poor is considered between 500 and 559) would mean the difference between paying 5.7 percent and 9.4 percent for a 30-year fixed rate mortgage in Pennsylvania, costing the borrower an extra $92,000 over the life of the loan.

Besides opening too many credit card accounts, you'll also damage your credit score by maxing out the limit on your cards.

Most people know that making late payments hurts, but few realize canceling a credit card also could shave points, Snyder says. So if you're about to apply for a loan and you're worried about your score, Snyder recommends at least delaying closing any accounts.

Another mistake people make is living on cash, he says.

" 'Cash only' doesn't work anymore. You need credit to get a score."

The best way to get and keep a good credit score is to pay off revolving debt each month, including mortgages, car loans and balances on credit cards, Snyder says.

"That will ensure the highest possible score."

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