OGDEN -- Consumer confidence is trending upward and hit a new high of 40.6 percent in June 2013 after hovering around 30 percent from 2009 to 2012. A national survey reported by the Consumer Snapshot Insight Center shows that U.S. consumers are consequently changing their buying habits. Though most U.S. shoppers are still mainly buying necessities, they are starting to loosen up a bit and are being more compulsive. As Utahns cautiously start spending again, I have created some tips for people considering borrowing money for those necessities and wants in life.
Mortgage rates are on their way back up, but auto and home equity loans are still low. With this kind of economic climate, you may want to take advantage of consumer lending if you can manage it. If you do, be honest with yourself about what you can afford, and start by understanding your credit score before taking out a loan.
Payment history, credit utilization and revolving usage make up more than 50 percent of your credit score. So that means, keeping up on mortgage payments and car loans, job longevity, how long you've had your credit, types of credit, how often you seek new credit and the length of time you have lived at an address are all taken into consideration.
The average credit score in Utah is 694, slightly higher than the national average of 680, as of April 2012. Although Utah's average is in the top 50 percent in the country, it's not ideal. A score of 720 to 760 will get you the most advantages when seeking a loan, because you will be perceived to be a lower risk. Remember that just one misstep can affect your score, so always make your credit payments on time, watch how you use credit and make sure what you owe is not greater than your credit limit.
A delinquency can stay on your score for seven years, and the first two years that you start establishing credit will be carefully scrutinized. Slip ups during that time will hurt your credit score the worst because they are considered an indicator of future loan delinquency.
In order to improve your credit score, I recommend:
1. Paying off your credit cards should always be your goal.
2. With revolving credit, pay off items with the highest interest rates first.
3. Pay off balances that are closest to your credit limit, and keep you balance at or below 30 percent of your card limit. Paying credit card interest is like giving money away.
4. Make sure you keep the older revolving accounts open. If you have an account with a good long history, leave it open. And, never try to close a credit limit on an account that still has a balance, because it will result in showing your credit limit as "0" which would indicate that the organization thinks you are not a good credit risk.
5. Going to the mall and opening an account at every store just to get a short-term discount is not healthy for a credit score because it creates too many inquiries in a short period of time.
6. You can pull your credit report once every few months, but do it only when you really need to.
7. There is no need to pay a third party organization for your credit score. You can access it yourself at the government site, www.annualcreditreport.com. You are entitled to a free report once year.
8. Pay no attention to mall cellphone sales people who say getting a cellphone plan will help you build credit. That's a myth. Paying for rent, cellphones, utilities, doctors, etc. does not establish credit.
For more information about credit scores and how they affect getting a consumer loan, visit your local bank relationship manager and they will be happy to answer your questions.
Jill Lawrence is a consumer loan relationship manager at Bank of Utah.