Perfect score: taking the mystery out of building A-1 credit

LIKE MANY, LISA NDIAYE FILLED OUT an application for her first Visa credit card in college. Unlike most, she paid her bills on time, kept the balances few, and 20 years later, she still has the account. While this may seem like common sense, these actions, coupled with Ndiaye's diligent payment history on all of her credit accounts, lands her a near perfect credit score of 843--a distinction that only a marginal percent of the U.S. population boasts.

"A perfect score is pretty rare," says Ryan Sjoblad, a spokesperson for Myfico.com, a division of Fair Isaac. "Less than 1% has an 850." Fair Issac Corp. created the FICO score to help lenders determine individuals' credit risk profile. The score ranges from 300 to 850; the higher the score, the lower the risk to creditors.

To buy just about anything on credit in America, one needs a respectable credit score, which ranges from 620 to 680. To buy anything on credit at a good price, one needs a great credit score, which is 700 and above. A select few, like Ndiaye, have reached the highest level and are reaping financial benefits because of it. To find out how to take your credit score from mediocre to great, read on. Higher credit scores mean better interest rates and top-tier treatment from all lenders--from mortgage to credit card companies

LIVING THE LIFE OF LISA

"I never had a bout with bad credit and if I were to in the future, I'd have a fit," says Ndiaye with conviction. The framer anti-money-laundering compliance officer at Bank of New York is used to getting what she wants from lenders. When the 39-year-old purchased her Newark, New Jersey, condo 10 years ago, she not only landed a decent rate for that period, but she also got some other perks. Her rate was fixed at 7.25% on a 15-year mortgage, and she paid no points and put only 3% down. By comparison, the 1994 BankRate.com National Index averaged 7.63%, with rates as high as 8.75%. "Depending upon the point in the year that she got the rate, 7.25% was right on target because anytime after March, rates were much higher," says Greg McBride, senior financial analyst for BankRate.com. Today, the Index hovers around 5.24%, therefore, if Ndiaye decides to refinance or chooses to go into another home, she would be in a position to receive prime rates. "The higher the score, the more benefits are offered to buyers," says Darrolyn I. Sharp, a senior loan officer at CU Mortgage in Merrillville, Indiana.

Some of the benefits or options available to high credit score holders are no money down, 100% financing, low interest rates, or even 'no document' loans. "With a 700 credit score, I can do a no-income, no-asset loan [for the client]. The underwriter doesn't have to verify assets or income because everything is based on the credit score," explains Sharp.

When Ndiaye calls, credit card companies listen. "I wanted to increase my line of credit, and in five minutes, my line was increased to $15,000 from around $10,000," recalls Ndiaye. "When I was traveling for work. I needed larger limits," she explains. Now a full-time housewife and stay-at-home morn, she still enjoys a high limit. The card she uses most often has a 9.24% interest rate, which is significantly lower than the 19.99% or even 24.99% interest rate offered to those with less-than-stellar credit.

A disciplined saver, Ndiaye has always paid cash for her cars. but many with great credit enjoy major benefits with auto financing. "A customer with great credit has choices," says Dan Crane, senior finance manager at Prestige Automotive (No. 1 on the BE 100s AUTO DEALER 100 list with $766.5 million in sales). "They can have the best interest rate, the longest term, or go with a lender that they want to use," says Crane.

PAYING DUES

In her 22 years of business, Sharp, the senior loan officer, has seen mostly fair to bad credit scores for people in their late 20s and early 30s. But recently she was pleasantly surprised when 31-year-old Tychelle Waterson walked in the door. "She's a rarity," says Sharp, about her client. "I figured since she was a first-time homebuyer, she would only qualify for Federal Housing Administration lending. And after I got her credit score, I said, 'You can have whatever you want,'" recalls Sharp. Waterson's highest score was a 735, but it is customary for mortgage companies to pull a credit score from all three major credit bureaus--Experian (www.experian.com), TransUnion (www.transunion.com), and Equifax (www.equifax.com)--and use the middle score. Waterson's middle score was a 712, so Sharp was still able to offer the licensed practicing nurse top-shelf assistance. "[A credit score of] 700 and above is the highest tier for us [to give best rates and offers]," says Sharp. "Underwriters kind of cringe at scores below 620."

Believe it or not, auto dealers cringed at Waterson just a year ago when she went to finance a car. "Buying a car was a lot harder; they gave me a really extreme interest rate, and I got a lower end car," explains Waterson, who is paying 20% interest on her 2003 Ford ZX2, Waterson had just finished paying off about $5,000 in debt.