Credit Score

Credit Score

Getting the lowest interest rate on your home mortgage translates to thousands of dollars during the life of your loan.   But the 1st step is understanding how the 3 major credit agencies Equifax, Experian and TranUnion determine your FICO score.

Your credit score aka FICO score that most banks utilize, is a combination of scores from 3 credit agencies.  These 3 agencies all collect data on your use of credit and your payment history to assign a score of 500 to 800.   So, let’s assume you know your credit score is low and you want to improve it.  Here are some best practices to increase your FICO score:

Keep your oldest cards:   Your oldest credit card has much more impact on your FICO score than a new credit card that you might have gotten recently even with a higher limit than your old one.   This mean you should not close your older credit cards even if you are NOT using them.  Keep them open, but reduce the limit if you are concerned about theft and un-authorized spending.

Reduce High Balance:  If you owe more than 30% of your limit on a monthly basis, then your FICO score will be poorly impacted.    For example, if you have a card with $10,000 limit and you owe more than $30,00 on it, it might be wiser to transfer some of the balance to another card, to reduce the impact on your FICO score.  This will improve your FICO score.

Pay On time:  Make your monthly payments on time and avoid missing them since this impact your FICO negatively.   In fact, it’s wiser  to pay the minimum payment if you are NOT able to pay your card’s balance every month.

Avoid Bankrupcy:   If you are considering bankruptcy, you need to think long and hard since these filings will impact your credit score for a long time.   So, consult an attorney to explore all your options before filing for bankruptcy.

Avoid Foreclosure:  The impact foreclosure is also sever on your FICO score.   This signals the lenders that you don’t take your obligations seriously since you have options to do a Short Sale and get ride of the mortgage debt much more elegantly.  In fact, Short Sale will impact your credit score much less than a foreclosure.

 Call us if you have any questions about your credit score.