Your Credit Score & How to Improve It 101

More and more people are becoming aware of their credit score and realizing some repair maybe needed in order to qualify for the loans they need to buy a house.  So what is a good credit score? Well, according to Damon Remy of Cornerstone Restorations LLC, your credit score is graded as follows:

• 740+           A+         Lower Rates
• 700-740      A
• 620-699      B
• 580-619      C           Higher Rates
• 450-579      D           Virtually No Financing Available

In order to understand how your credit score is what it is, you first need to understand how your credit score is determined. 

5 Factors of Credit Scoring

1. 35%  Payment History - Late Pays, Collections, Foreclosures, tax liens, judgements, etc.
2. 30%  Amounts Owed - Credit cards, mortgage loans, auto loans, HELOC's, etc.
3. 15%  Length of History
4. 10%  New Credit - soft inquiries, hard inquiries
5. 10%  Types of Credit Used - mortgage loan, auto loan, 2-3 major credit cards

Before you run out and hire someone to fix your credit score, please take a look at some of the things that you should know about your credit score and what you can do about it.

1. Payment History - 35%
   1. a recent 30-day late can cost 50+ points
   2. paying a collection that is more than 2 years old can hurt your score
   3. Being past due on accounts can cost 50+ points
   4. Dispute derogatory accounts - they do NOT automatically fall off your report after 7 years
   5. Divorce decree does NOT take precedence over a creditor agreement
2. Amounts Owed - 30%
   1. New debt temporarily decreases the score - it takes 6 months before new credit cards start working possitively for you on your credit score
   2. Keep credit card balances below 50% at all times to maintain your score
   3. Keep credit card balances below 30% of the limit 3-6 months prior to applying for a home loan
   4. Do NOT consolidate debt - share outstanding debt evenly among your cards
   5. If you go over the limit on your credit card even by $1, it will cause a serious penalty
   6. HELOC's can be considered revolving debt, not mortgage
   7. Do NOT close credit cards except in certain circumstances
   8. USE YOUR CREDIT CARDS or they will become unrated in 3 months
3. Length of History - 15%  & Mix of Credit - 10%
   1. Hold onto old credit cards, even if the rate is not great
   2. New credit users can add themselves to another person's credit card as an authorized user to generate a score
      1. This use to be the case, but not so much any more.
   3. Mixture is best
   4. The type of credit card DOES matter - DEPARTMENT STORE CARDS ARE A NO - NO!!!
   5. 3 to 5 revolving credit cards is optimal with established credit history
4. Types of Credit Used - Inquiries - 10%
   1. Soft vs. Hard Inquiries
   2. 14 day window for pulling your reports
   3. Inquiries affect the score for one year and can cost between 2 and 30 points on the score depending on your current score
   4. Mailings that state Pre-Approved means you are NOT pre-approved - you just fit a high level of criteria for them to send you a mailing. They haven't pulled your credit yet.

How to start improving your credit score!

1. Order Your Credit Report & Score - order your credit report and score from all three national credit bureaus, TransUnion, Experian, and Equifax.  You can go to www.freecreditreport.com or several other sites.
2. Verify the Data Reported - you need to verify your data in order to ensure it is accurate.
3. Dispute Inaccurate Data Immediately - Contact your creditors and send letters of dispute to the credit bureaus to have errors on your credit report corrected. Send them CERTIFIED!
4. If you don't see your credit score increase after you have done all the above items and it's been a couple of months, then you might want to talk with a professional about helping you out.  You can check out www.LeaseOptionCreditRepair.com or contact Damon Remy at Cornerstone Restorations at (314) 787-3139.  Agents - you should contact Damon and discuss his program for agents with clients that need this service.

Katie Arnholt Kim
The Kim Group
www.TheKimGroup.com