Not convinced your credit score can have a serious impact? Look at the chart below, which shows your expected interest rate on a 30-year fixed rate mortgage, depending on your current credit score:

So with a credit score of 620, your interest rate could be as much as 1.6 percent points higher than if you had a score of 760. Now, you might think it doesn’t matter because, really, there’s not much difference between 3.9% and 5.5 %.

Wrong. For big purchases, like houses and cars, such a seemingly small difference can result in almost unimaginable extra costs over the life of the loan. Let’s take the 30-year fixed rate mortgage loan above as an example, on a home-loan of $200,000. Here is what you can expect to pay, based on your interest rate:

I’ll let that sink in for a moment…

Yes, you read that right. A lower credit score can cost you an extra $68,000 on a 30-year home loan. And you’ll see similar (though not as drastic) effects on auto loans and other large purchases.

Now that we’re all in agreement about the importance of understanding your credit score, we can dive into the details…

Credit scores are compiled by the Fair Isaac Corporation (FICO), and for that reason they’re often called FICO scores. Lenders rely on these scores and the accompanying credit reports to determine your likelihood of defaulting on a loan. When you apply for a loan, the bank or lender will pay one of the three main credit bureaus (Transunion, Experian, and Equifax) to obtain your report.

The question is, how can you easily improve your credit score to save yourself money in the long run?

According to FICO, there are 5 factors that make up your credit score. They’re each weighted somewhat differently in terms of their effect on your total score. Let’s go through these one by one and describe specific actions to help you improve your score in each area.

Payment History (35% of Total Score)

This is pretty obvious at first glance: your history of making payments (or not, as the case may be) on loans and credit cards plays a big role in determining your credit score. Duh!

But digging a little deeper we start to see more nuance. The size of the late payment and the length of time it has been overdue matters. A $55 credit card payment that is 90 days late will usually have a smaller impact on your score than a $500 auto loan payment that’s six months late.

And remember, almost any type of late payment can affect your score. Cell phone bills, child support payments, medical bills… if you pay any of these late your score could pay the price. There have even been instances where overdue library fees were handed over to a collections agency and hurt people’s credit scores!

Here are action items to consider to improve this section of your credit report:

• Pay on time. Credit cards. Utility bills. Library dues. Parking tickets. No matter what it is, pay it on time. If there’s ever a time when you can’t pay a bill on time (or you forget), do the following:
• If you ever get a phone call or a letter from a collections agency, respond immediately and — it’s impossible to emphasize this enough — attempt to negotiate a removal of the collection from your credit file on the condition that you pay the amount in full.
• If you can only pay off certain past due amounts, be strategic about which ones to pay off first. Focus on the ones you can fully pay (so they won’t damage your credit score any more than they already have). Also focus on paying off the ones that have been overdue for the longest time.
• Open and then close a credit account. I’m serious. (But only if you’re sure you can handle it and if you DO NOT plan on taking out a loan in the next year) One of the best ways to do this is when you’re making purchases at a department store and the clerk mentions a special discount if you apply for their credit card (i.e. at Macy’s, JC Penney, etc.). Say yes, but also politely ask the clerk how to close the card if necessary. Later that day, close the account. Pay the first bill as soon as it arrives. You’ve now added another “on-time account” to your credit report.

Amounts Owed (30% of Total Score)

Many people don’t realize that what matters most here is not the total amount you owe but the proportion of your available credit that you are using. For example, a balance of $5,000 on a credit card with a $20,000 credit limit (25% used) is better than a balance of $1,500 on a card with a $3,000 limit (50% used).

This is true for auto loans as well. One that is 20% paid off will hurt your credit score more than one that is 90% paid off, regardless of the total amount.

Actions you can take:

• Don’t take on loans or expenses that you can’t afford. And as much as possible, reduce the revolving amount on your credit cards (i.e. the balance that carries over from month to month). If you need help with this, use one of the available online tools for eradicating credit card debt.
• Only for the very disciplined: Call your credit card company and ask them to increase your credit limit OR apply for another credit card. Increasing your total credit limit will decrease the proportion that you’re using. But this will backfire if you don’t have the willpower to hold your spending steady. So proceed with caution.

Length of Credit History (15% of Total Score)

This is pretty straightforward. The longer your credit history, the better. Here are actions you can take to lengthen your history:

• Start developing a credit history as soon as you’re responsible enough to do so. Many people get their first credit card while in high school. As long as you start off with a very low credit limit to prevent yourself from making any rash or foolish spending choices, this can be a good way to kick off your credit history.
• Don’t close an account in good standing unless you have to. It turns out, that credit card you’ve had for 10 years might be your credit score’s best friend (if you’ve used it wisely). Why? Because it’s the most tangible proof that you’ve consistently paid on time. Once the account has been closed, you won’t benefit as much from it.

New Credit (10% of Total Score)

Opening new credit accounts or having your credit checked will hurt your credit score, at least temporarily. Above, we described certain scenarios where opening accounts can help you in the long term, but it will always hurt you a little in the short term.

The solution? Don’t apply for a whole bunch of credit cards at once. In fact, don’t apply for a whole bunch of credit cards at all. Use credit (and applications for credit) very strategically and very sparingly.

Types of Credit (10% of Total Score)

There are many types of credit — auto loans, mortgages, credit cards, retail accounts, etc. — and having several different types can sometimes help your credit. However, there is no need to take on many types of credit simply to help your credit score.

Now you understand the basics of the credit score and have some actions to help improve your score. Still, there’s one more thing that can help you, and luckily it’s not too hard to do:

• Check your credit report for free once a year via AnnualCreditReport.com. That site was mandated by the government to allow people to access their report. When you see your report, look over it carefully to make sure there are no errors on it. Occasionally, your credit can get dinged based on false or inaccurate information. By checking over the report yourself, you can make sure that doesn’t happen.
• Beware of signing up for services that promise to monitor your credit report on a monthly basis — usually for a fee of up to $15 or $20 per month. These are usually no more effective than simply checking the report yourself for free once a year or even paying a one-time fee to see your report and score when necessary.

Remember, credit scores can be anywhere from 300-850 but most are within the 650-750 range. In 2006, FICO said the median score was 723. That may not be true after the disastrous economic events of the past five years, but it’s still an interesting reference point for you to keep in mind.

Hopefully, if you follow the advice given here, you will have a robust credit score for years to come. While getting a better score can be a bit of a game to be played, taking an active role in improving it is important. Who knows, maybe the ten minutes you just spent reading this will someday save you $68,000 on a 30-year mortgage!

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Those are just the some of latest rankings that list Bozeman, Montana as a desirable place to live.

In 2007, Bozeman made U.S. News and World Report’s list of best places to retire.

In 2004, it made Outside Magazine’s list of best college towns.

And in 2005, American Cities Business Journals’ ranked Bozeman the No. 1 small-business market for cities of its size.

No doubt Bozeman was and is a great place to live. That’s why we are all here. All of this is why Bozeman MT has been one of the Top 10 places to buy real estate (great long-term investment).

“Bozeman – an outdoorsy sanctuary tucked within the Rocky Mountains, just 93 miles north of Yellowstone National Park – anchors Montana’s fastest-growing county,” U.S. News and World Report stated in 2007. “Bozeman is home to Montana State University, but it has also become a mecca to vacationers and tech-industry workers, along with retirees looking for peace, quiet, culture, community and the great outdoors.”

And then there’s Bozeman as the No. 5 drunkest city (Centers for Disease Control). It’s good news if you own a saloon, not so good if you’re a mental-health advocate.

Some people argue that drunkest and healthiest are not necessarily mutually exclusive. One friend of mine quipped, “Who says binge-drinking, beer-swilling folks aren’t healthy?” Another said, “I know lots of healthy people who drink heavily every day.”

No wonder Bozeman is among the fastest-growing cities in the state.

Getting a mortgage just keeps getting tougher, and many homebuyers are getting rejected for loans they could easily afford.

The issue: Tighter standards from Fannie Mae and Freddie Mac, the government entities that back mortgages made by banks. Banks are reluctant to make loans without the Fannie and Freddie guarantee, and loans backed by them account for just about every mortgage written these days.

In 2009, the agencies lifted the minimum credit score that borrowers must have from 580 to 620. That’s probably for the best.

But they’ve pushed through a host of other requirements as well, and that means real estate deals don’t get done, even for some relatively low-risk borrowers.

If you have one Fannie/Freddie guideline you violate and that can get you rejected. Here are some of the reasons that banks must turn down borrowers for mortgages:

Too few of the condos in your association have been sold
For Fannie/Freddie lenders to approve a mortgage to finance purchase of a condo, a large majority of the units — 70% — have to be already sold or under contract to individuals. Before 2009, the threshold was 51%.

If more than 30% are still owned by the company that built the complex or sponsored its conversion from rental units, the mortgage will be denied, no matter how qualified the buyer is.

Vulture investors flipping their way to big profits
The reasoning is that condo developments where the builders or sponsors still own a large share of the units are more likely to get into financial difficulty. If the builder or sponsor runs out of funds before it can sell off the units, it may stop paying the common charges and property taxes.

Struggling sponsors have also lost unsold units to creditors, which resold them off at bargain basement prices. That jeopardizes the values of all the condo units, sending borrowers underwater and making them more likely to default.

The agencies also refuse to fund condo loans if buildings face some pending legal liability, if more than 15% of owners are behind on homeowner dues or if more than 10% of units are owned by a single entity.

Your debt is too high
Fannie and Freddie have also increased their emphasis on income relative to debt.

If someone’s total debt payments exceed 45% of income, the mortgage will be denied. In 2009, the limit was 55%.

Using that as a hard and fast rule can penalize very qualified buyers, ones who should be able to meet their debt obligations.

Take, for example, a couple that wants to buy a second home as a rental. Two mortgage payments could easily push them past the 45% threshold, even though they’ll have rental income and home equity.

The 45% rule can also hurt small business owners who have had a couple of bad years. Their incomes may be down relative to their debt, but they may have plenty of cash to keep from defaulting on a mortgage.

The wait after foreclosure is extended to seven years from five
Some borrowers lost homes to foreclosure but then diligently rebuilt their financial health. Despite high credit scores, ample assets and income and steady employment, lenders are not allowed to finance their Fannie/Freddie mortgages if their foreclosures happened any time within the past seven years.

Before spring last year, the wait time was five years.

Missed payments on credit card debt
Fannie and Freddie also have gotten stricter in how they factor in missed payments on credit cards, auto loans and other debts in which the balances do not have to be paid off every month.

They used to be okay with a missed payment or two. Now, one missed payment will hit your debt-to-income ratio, because banks will add 5% of your outstanding loan balance to the debt part of the calculation.

That would be an extra $1,000 on a $20,000 student loan balance, for example.