Credit Score

Credit Score

If you are planning to buy a home and your credit is less than perfect, then you have some work to do before applying for a Mortgage loan.   ut let’s 1st understand where your credit score comes from.  Your credit score aka FICO score that most banks utlize is a combination of scores from 3 credit agencies.  These agencies are:

  • Equifax:           1-800-685-1111    Fraud Hotline: 1-888-766-0008
  • Experian:        1-888-397-3742   Fraud Hotline: 1-888-397-3742
  • TransUnion: 1-800-916-8800   Fraud Hotline: 1-800-680-7289

These 3 agencies all collect massive amounts of data about your credit card purchases and your payment history to develop a score ranging from 500-800.   Now let’s see what you can do to improve your credit score based on the information that’s used to compute your score:

1) Credit Age:  If you have multiple credit cards, the one that is the oldest has more impact on your credit score.    This is regardless of the limit on it.  The agencies figure that the longe you have been with a creditor, the more valuable that history and relationship is to rank you higher.

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.

2) High Balance:   If your monthly balance of your credit card is higher than 30%; your score will be impacted negatively.   For example, if you have a card with $100,000 limit and you owe more than $30,000 on it, it might be wiser to transfer some of the balance to another card, to reduce the impact on your FICO score.

3) On time payment:  Avoid missing payments since your creditors will report these late payments to these agencies which will score you as a much higher risk.  In fact, it’s wiser  to pay the minimum payment if you are NOT able to pay your card’s balance every month.

4) Bankrupcy:   If you are planning on filing bankruptcy, you need to think long and hard since these filings will impact your credit score for a long time.   So, don’t take a decision on bankruptcy lightly.

5) Foreclosure:  If you for a strategic foreclosure and can not avoid it, the impact of such a decision will be significant.   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.