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Here’s a secret the banks don’t want you to know: Yes, you really are just a number. Well, at
least to their underwriters you are. These are the people who make the decision on whether
or not you’re approved for credit and if so, what your rate will be. The amount of money that
will come out of your pocket for the next (fill in the blank) months is determined largely, and
sometimes exclusively, on your credit score. Based on your score, you’ll be thrown into a tier
– the tier ranges vary but there are usually around five tiers, with the top tier usually starting
somewhere in the mid-700s.

Being in the top tier can make a pretty significant difference to your bottom line. To illustrate
(and these numbers are purely hypothetical) let’s say you want to refinance your $250,000
mortgage for 25 years. The difference between Tier 1 and Tier 2 can mean a rate difference as
much as half a point (0.5%) – this equates to a monthly payment of $1,390 for the Tier 1 score
(hypothetical rate 4.50%) and $1,460 for the Tier 2 score (hypothetical rate 5.0%)….a difference
of $70. Further, the lower you slide down the tier pole, the bigger the rate discrepancy. A Tier
3 score could conceivably mean a full point higher on rate. Using the same example, a Tier 3
score (hypothetical rate 6.0%) would mean a payment of $1,610…and so on.

The good news is that there are easy steps you can take to elevate your score.

First step – find out your credit score! There are plenty of resources you can use to pull your credit
score, and don’t worry – pulling your credit yourself is considered a “soft pull” and does not

Second – once you have your credit report, look for any errors or anomalies. Financial institutions
can make mistakes too, and you never know if you don’t ask. I once had a blemish removed
from my credit after a mistake related to an address change. You may find nothing you didn’t
already know, but it’s always worth a look.

Third – throw away/freeze/cut up those small retail credit cards that you opened to “get 15% off your purchase
today”. Unless you can keep a low balance/low utilization, then the high balance keeps your score low.  So don’t close them for now as closing credit card accounts can damage your credit score because you end up lowering your overall utilization and age across all accounts.  Pay them off instead and put them on ice.

Fourth – call the credit card company of your main credit card you’ve had the longest, and ask
if they’ll increase your limit for being such a great customer. One major component of your
score is the utilization percentage of your existing credit facilities. In other words, if you have
a $2,000 balance, this looks better on a $10,000 limit (20% utilization) than it does on a $5,000 limit (40% utilization). DISCLAIMER: only take this step if you can do so responsibly, this is not an invitation to spend more money!

Lastly, from this point forward, DO NOT be late on your payments. This may seem obvious,
but sometimes when life gets crazy, it can be easy to lose a bill in a pile of mail or forget about
it after a few days of “I’ll get to it later.” Even 30-day late pays are EXTREMELY derogatory to
your credit. Schedule automatic bill payments whenever possible, or log monthly due date
reminders in your calendar.

These actions, along with ongoing responsible spending behavior, will have you enjoying the
view from the top (tier, that is) before long. Who knows, you may enjoy being just a number!