Your credit score affects your ability to qualify for, and the interest rate charged on, all types of loans, including home loans. Your credit score is a reflection of your credit-worthiness, as determined by the three main credit bureaus (TransUnion, Experian, and Equifax). They say your score breaks down this way:
- 35% – payment history
- 30% – amounts owed
- 15% – length of credit history
- 10% – types of credit
- 10% – new credit
Scores range from 300-850. Be very cautious of companies that offer to “fix” your credit. I will talk to you about this.
Some basic tips to improve your credit score include:
- Review your credit report for any errors.
- Payment history is the most important part of a credit score. This includes account payment information, public records (bankruptcy, judgments, suits, liens, wage attachments, and so on), collection items, and /or delinquency (past due items). Payment history also includes amount past due, public records, or collection items. It also includes number of past due items on file and number of accounts paid as agreed.
- Delinquencies that occurred within the past two years are of greater weight than older items. Paying off the more recent delinquencies will help your credit score, but make sure the creditor gives you a letter of deletion first! Paying off older delinquencies may hurt your credit score in the short run, because it will make the date of last activity recent. I will discuss this with you.
- The ideal amount to owe on your credit cards is zero, but that is often difficult to do. However, it may be helpful to spread the debt around so your proportions of amount-owed to credit-limit are not above 30%. Again, I will help you evaluate your individual situation.
- Use your credit cards every two to three months, but be sure to pay them off monthly. If a card becomes inactive or is closed, the account will not be considered in the formula that calculates the score.
- Do not close an account without first discussing it with me.