Tips to Increase Your Credit Scores
High credit scores allow you to qualify for lower mortgage rates and more mortgage products. These tips will help you attain and maintain high credit scores
Three Different
Credit Score Types
When you get a FICO score from your credit card company or most other websites, it is a consumer score, not a mortgage score.
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There are 3 different credit scores, and I have never seen them be the same.
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The consumer score – this is the score credit card companies use, and some other companies (e.g., if you are financing furniture)
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The mortgage score – all real estate lenders use this score.
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The auto score – when you lease a car or get a loan, you will get this score.
In my experience, the consumer and auto scores are usually higher than mortgage scores. This is why it is important to get mortgage scores before being pre-approved for a home loan.
Debt to Credit Limit Ratio
The amount you owe divided by your credit limit equals the percent credit usage (i.e., if your limit is $10,000, and you owe $3,000, your ratio is 30%).
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It is best to keep your credit utilization 30% or below. However, there are five crucial levels. If you are paying off debt to increase your score, try to pay them down to the lowest of these levels possible.
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10% or less = A+
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30% or less = B+
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50% or less = B- to C+
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70% or higher = D
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100% or over your limit = an F
Credit History Length
Please do not close old credit cards!
This is a big mistake people make when trying to recover from a history of excessive debt. Length of credit history is essential. That is one reason older people typically have much higher credit scores than younger people.
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I recommend keeping the cards and using them every 4 to 6 months. If you don’t use them for a while, they no longer impact your score. Companies often cancel credit cards that aren’t used for a while. If you use the card and pay it off every few months, it stays active and improves your score.
Collections
If you have unpaid collections, I advise paying them only if the collector agrees to delete them from your credit report. If they only show it as “paid in full”, it may lower your credit score. This is a flaw in the system, in my opinion.
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The system sees any recent activity in that sector as bad, even if the activity is paying off the collection. This is very important. So, I advise my clients to call the creditor and tell them you will pay if they agree in advance and in writing to delete the record if it is paid.
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I also help my clients understand the position of the collection agent and how to improve their chances of success when calling them. This is too involved for this venue, so please call me if you want that advice.
Late Payments
30, 60, 90, and 120-day late payments hurt credit scores, often by 100 points or more. A late mortgage payment is devastating to your credit score.
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The damage caused by late payments depends on the time since the last late payment, the scoring model used for you, and several other criteria. Late payments become less damaging each year that passes. Older late payments will be less damaging than recent late payments.
