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