Your credit score is made up of several things. I’m going to give you some examples, based upon the weighted average of how it will impact your score, of things you can do to improve your credit score. Obviously, my hope is that you will use this information to raise your credit score and buy a house – but the honest truth is that a stronger credit score can also save you money on credit card interest, and insurance!
IN GENERAL, to have access to the best programs, and the best mortgage rates you should have a credit score of at least 640. Scores below that threshold can qualify for other financing, but there are normally “overlays” meaning you need to show rental history, or have some savings in the bank. When your credit scores are under 640, then the Banks are looking for a little bit “extra” security.
Credit Score Tips: Payment History
Obviously, paying your bills on time will impact your credit score. Did you know that the Payment History section of your credit score accounts for 35% of your credit-score pie? This is where all of your derogatory items hang out.
Here’s a question where you might be able to guess the answer…which derogatory account weighs the most: a judgment, collection, bankruptcy, 150-day late, or a tax lien? Well it’s just another trick question because with such limited information, there is no clear answer.
The real answer is that we are looking at the DLA, or Date of Last Activity. We need to know that something “bad” happened but you’ve moved beyond it.
Think about it this way, the newer the account date (irrelevant to other factors like the type or balance), the more damaging it will be on the credit report.
For example: your $10,000 judgment that is 3 years old weighs less than your Pizza Hut collection that you just paid off from five years ago for $14. This is due to the fact that your Pizza Hut collection DLA has just been renewed. When you paid off Pizza Hut, you added a new date to that item. Sometimes our credit score tip is: you’re better off NOT paying off a collection when it is not going to help the credit score.
The Credit Counselors tell us that if you have a perfect credit score of 850 a single 30-day late can lower your score by 175 points.
Think about it this way; if you were a bank and you had to choose to lend money between one person who had a single 30-day late last month and who, as a result, now has a credit score of 675 versus a different person who went bankrupt 5 years ago who also has a credit score of 675; who would you choose?
Hopefully, you choose the aged, bankrupt client because current risk is much more relevant than any other factor that impacts your credit score. Sure, the client who went late might have had a brain fart and simply forgot to pay a bill… or they could now be in serious trouble; that doubt is where the real problem lies.
The newer the date of the last negative thing on the report, the more weight that item has. Believe it or not when you pay off a collection, that that creates a new date for the activity associated with that collection.
Have more questions about your credit score situation and how to buy a house? Call Steve and Eleanor Thorne at 919 649 5058, and we will be more than glad to go over your unique situation and give you personalized suggestions!
Originaly Posted at NCFHAExpert