Palmer Harned, Realtor®
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Cracking the Credit Score Code

Credit Score.  A term that can cause stress and confusion as soon as it’s mentioned.  But it doesn’t have to be the scary elephant in the room.  With a little research and the information below, you can learn your score, find out what goes into it, and figure out how to improve or maintain it.

How Do I Learn My Credit Score?  Visit www.annualcreditreport.com to get your free report.  From there you can request your score from each of the three credit bureaus (Equifax, Transunion, Experian).  The average of the three scores is considered your overall score.  Keep in mind that this score will be in the ballpark but not exactly the same as your FICO score, which is what lenders look at.  You can obtain your FICO score at www.myfico.com, but it costs $15/month.

What Goes into My Credit Score?  The chart below shows how 5 different factors are weighed.

Credit Score

  • Payment History (35%) – Number of late and outstanding payments, how long the payment has been late or outstanding, bankruptcies (less is better)
  • Amounts Owed (30%) – Number of accounts with money owed, how much you owe, ratio of money owed to credit available (lower is better)
  • Length of Credit History (15%) – How long you’ve had a credit card, car loan, student loan, etc. (longer is better)
  • Types of Credit (10%) – How many lines of credit you have (more is better)
  • New Credit (10%) – Number of recent accounts opened (less is better)

How Does My Score Affect Getting a Loan?  Credit scores range from 300-850.  In order to be considered for a loan, you must have a score of no lower than 620 in most cases with a credit history of no less than 2 years.  The higher your credit score, the lower your interest rate, and therefore the lower your monthly mortgage payments.  A higher credit score may also allow you to put down less money up front as a down payment.  Keep in mind that when applying for a loan using two incomes, both individuals’ credit scores will be looked at and the lower of the two average scores will be used. 

How Can I Improve or Maintain My Score?

  • Do get a credit card if you don’t already have one
  • Do monitor your credit often (www.creditkarma.com is a great tool for this)
  • Do dispute any discrepancies or errors on your report with the credit bureau(s)
  • Do pay all your bills on time
  • Do request credit line increases as often as possible
  • Do maintain a low balance
  • Do keep all accounts open, even old ones you no longer use (never cancel an old card!)
  • Do be patient – it can take months and even years to improve your credit, but it is well worth it!

 

 

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