Classic FICO model : 300 - 850.
How can you improve your credit score?
Remember : The score designed to predict the likelyhood of 90 days lates in the next 24 months, on any trade line !!!
There are 5 components that are considered for a credit score:
1. Payment History is 35% of your credit, includes recency, frequency & severity. Don't be late paying your bills. Tip: if possible...pay your bills as soon as you receive them!
2. Balances are 30%, never charge over 50% of your balance limit. note, all those with 60 or 90 days lates had high balances on their revolving credit cards! Tip: pay your bill as soon as you get it...don't wait for the due date to come. Do not pay only the minimum, pay more ! but do not pay all of it, either. leave a small balance to be carry on to the next month billing.
3. Credit history 15%, How long the borrower has a credit? How many new ones? Usually 3 or 4 credit cards are sufficient. Tip: do not apply for more, and never close any one of them!!
4. Type of credit 10%, the score counts all of your trade lines by category - opened and closed !! Too many revolving cards are not really good, unless you manage them perfectly, meaning each one of them should be under 50% balance limit ! Tip: spread it out...you will earn more points if you a have small balance on all of your lines versus zero balance on one card, and more than 50% on the others...
5. Inquiries 10%, becomes a major factor if you had too many inquiries in the past 12 months. Generally, 5-7 inquiries per year considered "normal", and will not "hurt" your score. Then, each inquiry usually reduced 5-10 points off your score.
Mortgage inquiries are different : I can pull your credit as much as you want within the last 30 days and it will not hurt your credit score! Then, only once every 14 days, counting backwords...
It's virtually impossible to change your score in the time between when most people decide to buy a home or refinance their mortgage and when they apply. So the short answer is, you really can't "on the spot." But there are strategies you can live with to make sure when you apply for a loan your score is as high as possible.
Make sure that the information each of the three credit reporting bureaus has on you is consistent and up to date. Order a copy of your credit report about once a year, and dispute any inaccuracies.
Note: Theoretically, if a series of credit reports is requested on your behalf during a limited amount of time, your score goes down until time passes without any inquiries. Changes in the law though have made "consumer-originating" credit report requests not count so much. Also, a series of requests in relation to getting a mortgage or car loan is not treated the same as a number of credit card requests in a limited time. This is because the credit bureaus, and lenders, realize that people request their own credit reports to keep up with what's on them, and smart consumers shop around for the best mortgage and car loans.
Unsolicited credit card solicitations in the mail don't count against your credit report, so don't worry.
Bankruptcy filings and foreclosures, which can stay on your credit report for as many as 10 years, can significantly lower your score. After a bankrupcy you can and should correct your credit score, I know several borrowers that 2-3 years after their bankruptcy, increased their score to 700+. But remember! POST-PERFORMANCE is taken in consideration!...and even 9 years later, if you have 1 (only one!) 30 days late...your score will go down completely!
Collections : Scores goes down. If you decide to pay your collections - scores will go down as well. One factor code looks at the balance owed on your delinquencies. Tip: if the collection is older then 2 years - do not pay! do not awake the Recency factor! I know lenders that are willing to "work with me" for borrowers with collections. If you decide to pay a collection...remember: BEFORE payment, and as a part of your settlement, you need to ask the collection company for a letter stating that "THIS COLLECTION SHOULD NEVER HAPPEND". That's all. it will "save" your credit score.
Late payments work against you. It's extremely important to pay bills on time, even if it's only the monthly utility payment.
* Don't "max out" your credit lines. As I've mentioned before, do not pass the 50% limit of your card, Since the size of the balance on your open accounts is a factor, lower balances are better.
* It's said that by carefully managing your credit, it's possible to add as much as 50 - 60 points per year to your score.
* Note that high balance on instalments cards are not significant and a home equity line is a revolving factor. $35,000.- is the magic number for high limit...then it will suggest that it is an instalment loan.
Finance company instalment account is negative... Example: You have an account with a furniture company...looks like an excellent deal: Buy the furnitures now - Pay later! However, this is considered as a very HIGH RISK!
For further questions/information please contact me, and I will be happy to help out with your credit and with your home loan.
Eli Magen
Licensed Mortgage Broker in the state of Florida.
