If you are thinking about shopping for a new home, be sure to check out your credit score. In the past a 720 could get you the best rates available, but not anymore. The bar has now been raised to 750 or higher. You can take steps to improve your score, but you need to know where you stand first.
Order a credit report from all three of the major credit bureaus at annualcreditreport.com. By law you are entitled to one free credit report a year from each of the credit reporting agencies which are: Equifax, Trans Union and Experian. Once you receive your credit reports check them carefully for errors. Look for accounts that may not belong to you. Look for accounts that may show delinquencies that did not occur. Credit bureaus are required to investigate disputed items, usually within 30 days.
You can order all three reports at once or you can stagger them out over the year to monitor any corrections that have been made. But, if you plan to refinance within the next few months, order all three credit reports now. All lenders will review your credit reports thoroughly so it is important to make corrections before you apply for a new loan. Be sure to buy your credit score when you order the credit reports because that is not included on the free reports. You can order your score from Fair Isaac's website www.myfio.com. Prices range from $15.95 for a FICO score and one credit report to $47.85 for all three scores and reports. Once you know where you are with your score you can take steps to improve it.
Pay your bills on time. Your payment history counts for 35% of your score. A late payment can stay on your report for up to seven years. The older the late payments are, the less effect they will have on your score. The last 24 months is the most important.
Reduce your debt. The amount of debt you have outstanding as a percentage of your available credit limits accounts for 30% of your score. If you have a credit card with a $10,000 limit and a balance of $5000 your "credit utilization" is 50%. Your credit score reflects the debt ratio for each of your cards as well as the ratio for your overall debt. Reducing your credit utilization is one of the most effective ways to improve your score. Reduce your individual and total balances to 10% of your available credit.
Don't open new accounts. Opening new accounts to improve your credit utilization does not work. That strategy will hurt your score more than it would help. If you apply for a new credit card or other type of loan, the lender will request your credit record and that inquiry will show on your report. A few of these inquiries and it will hurt your score dramatically. Requesting your own credit report does not impact your credit score.
What Makes Up Your FICO Score:
Payment History 35%
Amount You Owe 30%
Length of History 15%
Types of Credit You're Using 10%
New Credit 10%
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