FAQ #4 ....... How Can I improve My Credit Scores?

Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

This is my fourth FAQ blog in the ActiveRain contest that Anna 'Banana' Kruchten established in which we are to respond to the 10 most frequently asked questions that we are asked, and we are to do this in 10 different blogs.  My last blog was titled "FAQ #3 .......... Homeowners Insurance" in which I answered the question "Why Do I have To Pay For A Full Year Of Homeowners Insurance Up Font When I Am Paying For It Every Month In My Mortgage Payment?"  Today I will cover a question that I am asked almost seven days a week "

FAQ #4 ....... How Can I improve My Credit Scores?

I Pre-Qualify several Borrowers on a daily bases.  Which means I look at a lot of Credit Reports, and unfortunately many Borrowers are not where they need to be credit wise.  Also when a Borrower contacts me wanting to be Pre-Approved for a mortgage it is because they want to purchase a property, and they want to purchase it now.  So when I pull their credit report and the cred scores are lower than what is required for the Mortgage Programs available today, the very next question that I am asked by those Borrowers is "How Can I improve My Credit Scores?"  Followed by "How can I Improve My Credit Quickly?"

There is nothing magical about Credit Scores.  What determines good or bad credit scores is really pretty simple.  You do not have to be a rocket scientist to figure out what you need to do once you know what makes your credit scores go up or down.

The Three Components That Have The Biggest Impact On Credit Score Are:  Credit History, Years of Credit, and Available Credit. The first two are time related, therefore, it will take time for them to have an impact on the Credit Score.  The third however, can produce very quick and substantial results if the Borrower has the funds to do what needs to be done. 

  • Credit History: Represents 35% of a Credit Score, and it is the history of how well you have paid your bills during the time you have had credit. However, late payments, charge offs, or collections that are on the credit report, but have not reported for two years or more, very little impact on a credit score. In fact it is better to not pay off these collections, because that could actually bring down the credit score. That is because it will bring the last reporting date current again, and will now be reported as a current late once again. That is a double edge sword, because most of the time you will need to payoff collections regardless how old they are in order to qualify for most of the Loan Programs today.  Late payments can lower your Credit Score quickly, but it takes much longer to bring credit scores back up by just simply paying your debts on time.
  • Years of Credit: Also know as length of credit. This simply what it says.  It is the number of years that you have had credit, the longer the number of years with good credit the higher the score. This represents 12% of a Credit Score. 

The third major component as I stated above, is the one that can quickly raise or lower Credit Scores.  Therefore, it is the best and quickest way for a Borrower to quickly increase their Credit Scores if they have the funds to do what they need to do. 

  • Available Credit:  Rrepresents 30% of a Credit Score.  Available Credit is the amount of credit that is available to a Borrower presently. In other words how much of the credit limit on the cards is still available. If the balance on a credit card is over 30% of the available credit limit on the card, it will have a negative impact on the credit score.  And if the Borrower has gone over the Credit Card Limit, it will have an even bigger negative impact on their credit.

So the answer to both "How Can I improve My Credit Scores?"  and  "How can I Improve My Credit Quickly?"  Is to pay down the balance on credit cards to less than 30% of the Credit Card Limit.  It is that simple if the Borrower has the necessary funds to do that.  Depending on the number of credit cards, and how close they were to maxing out the credit card, they can easily see a 40 to 60 point jump in their credit in just one month if the balance on the credit cards can be brought down to no more than 30% of the credit card limit.


Previous FAQ's Blogs.

"What Do I Need To Do To Get Pre-Qualified For A Mortgage?"

"What Do You Mean I Need Money For Closing Costs?"

"Why Do I have To Pay For A Full Year Of Homeowners Insurance Up Font When I Am Paying For It Every Month In My Mortgage Payment?"



  Info about the author:

 George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who is licensed in #CT, #RI, #MA, #NH, & #FL and can assist you with all your #FHA, #Conventional, #VA, #USDA, and #State Bonded Progam #mortgage needs in #CT, #RI, #MA, #NH, & #FL. George resides in Middlesex County which includes #Middletown, #Old Saybrook, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or souto@snet.net


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Gay E. Rosen
Julia B. Fee Sotheby's International Realty - Larchmont, NY
As Real as Real Estate Gets!

George - good post, and good points... credit reports are so important... it always amazes me how Big Brother is just a click away..

May 19, 2012 07:21 AM #1
Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices

George - interestingly, many people think that if they pay on time, this is the best they can do. Actually this is not true. It is best to know the reporting date on the card. Let's say you payment is due by the 19th of the month, and the reporting date, i.e. when the report is given to the Credit Bureaus, is the 10th of the month, you paid off everyting on the 18th, but the report went on the 10th, and on the 10th you migh have some unpaid amount which will affect you utilization of credit percentage.

The best strategy could be paying practically right after you used the card. This way your utilization will be less than 10% and this is the ideal number to get the highest number of points

May 19, 2012 07:47 AM #2
Ed Silva
RE/MAX Professionals, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

George, it's interesting that at one time a steady job and a few dollars in the bank would be enough to make a home purchase. Now way too much power is given to the credit bureaus

May 19, 2012 11:42 AM #3
Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT
Your Mortgage Consultant for Life

Great job with the post and explaining the right information. There are so many people that explain the information that don't do a good job at all, infact sometimes do more harm than good.

May 19, 2012 08:55 PM #4
Debbie Walsh
Shahar Management - Middletown, NY
Hudson Valley NY Real Estate 845.283-3036

This is one of the questions I hear the most each week.  Very good information George!

May 20, 2012 01:47 AM #5
Nick T Pappas
Assoc. Broker/Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, @HomesBirmingham & Providence Property Mgmnt, LLC Hun... - Huntsville, AL
Madison & Huntsville Alabama Real Estate Resource

George, I have to agree with Ed about too much power in the hands of the credit bureaus.  I hope this info finds its way to many buyers or anyone contemplating purchasing a home...great info.

May 20, 2012 09:22 AM #6
PRG Real Estate - San Jose, CA
VA Home Loan Specialist - SF Bay Area

Great tips to let future clients know! Thanks again.

Jun 18, 2012 10:36 AM #7
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George Souto

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