With home prices at record lows, and average 30 year fixed rate loans below 5%, homes are flying off the market.   This is especially true for homes under $350,000.  The last two homes I helped clients buy, were purchased in multiple offer scenarios within days of going "on the market".   Potential buyers need to have all their ducks in a row before writing an offer to purchase.

When the decesion is made to start looking for a house, it is most likely too late to start trying to improve your credit score.  If you think you might be applying for a purchase that will require a substancial loan i.e. a home, automobile, or recreational vehicle, you need to start preparing and repairing your credit score now.  It takes up to 90 days for credit score repair to show on your report.

Here is what you need to know now about your credit score.  Fair Isaac Company (FICO) established a grading system to evaluate the risk a borrower poses to a potential creditor.  The score is based on: 

Payment history 35%.  The best thing you can do is make your payments on time!  For the most part, you can be up to 29 days late without it being reported to the credit bureau but don't risk it.  Even if you only make the minimum payment, make it on time!  If you are more than 30 days late, you can try writing the creditor and ask them to retract the negative comment.  It won't hurt your score to ask, so ask.  You have nothing to lose.  If they agree to remove the comment, ask for a letter stating such on the creditor's letter head, indicating which late payment is being retracted including your account #, your name and address. 

Balance carried 30%.  The best thing you can do is to keep your balances low.  Don't confuse this with closing your accounts.  Keep as many accounts as you can open, but keep your balances as low as possible.  Many consumers believe paying off credit cards will help their credit score.  This is false!  Lots of open accounts with high limits and low balances will raise your score.  If you have a problem controlling your credit cards, and you keep maxing them out, then yes close them. Just know that closing them hurts your score.  The ideal situation is lots of credit accounts where your balance is less than 50% of the available credit.  Also, it's better to pay them down slowly.  Don't focus on one card, paying it down quickly.  Spread your payments out so that all cards are lowered at a modest rate. 5 open credit accounts seems to be optimum.  More is better than less.

Credit history 15%.   This is how long you've had credit available on specific accounts.  Running out and opening 5 credit accounts will not help you as much as having 5 credit accounts open for the past 4 years.  Again, leave your accounts open even if you don't use them.  Afraid of somebody else abusing your open line of credit, then destroy your cards so they can't be used.  If you get a bill from an account you don't use, call the creditor and let them deal with the loss.  Most creditors have ways of telling whether or not you personally used the credit line. 

Mix of accounts 10%.  This means 5 Visa cards will not benefit your credit score as much as 2 Visa's, 1 Macy's, 1 car loan, 1 equity line,1 Discover, 1 American Express.

Credit score inquiries 10%.  Each inquiry into your credit score costs you 5 points.  FICO has changed how they deal with multiple inquiries.  Multiple inquiries within a 45 day period now counts as 1 inquiry.  This is because when customers are shopping for a car, a home, or other purchase that requires a loan, each potential creditor might run your credit score.  Could you imagine the damage to your credit score if you were shopping around for a new car, and 4 different dealers ran your credit score?  Getting your free annual credit history does not count as an inquiry.  Employment applications, account reviews, and insurance inquiries also do not count as inquiries.

In a nutshell:  Keep a low balance with a high credit limit (ask to increase your limit if needed, but not if they will pull a credit report!).  Keep your accounts current.  Pay accounts down slowly and consistently.  Keep your accounts open as long as possible. Have a broad mix of accounts and use old accounts periodically.

What is a good credit score?   A credit score below 620 is considered risky.  620 - 650 is good and should not prevent you from getting a loan but you'll pay a higher interest rate.  650 - 700 is very good.  700 + is great and will get you any loan at a low rate.  750+ is excellent and will make the creditor's best rates available.

More Cheney nuggets.  Increasing your credit score just 10 points can save you tens of thousands of dollars over the course of a 30 year loan.  On October 1st 2009 legislation made it mandatory that lenders verify that a borrower has the ability to repay a loan under the terms of the loan.  FICO scores range from 300 - 900.  13% of the public have scores over 800 (up from 11%).  Improving your FICO score above 740 has no significant bearing on the interest rate you'll be offered.