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When Size Matters. Your Credit Score and How To Improve It

Your credit score can range between 200 and 850.  The higher number here the better.  If you want to apply for a mortgage you should shoot for 620 or above.  You could pay up to 1% more for an interest rate at a lower score. 

What can affect your score?

Payment history. Do you pay on time? Bankruptcies and collections affect your history negatively.

How much do you owe and to whom?  There is a delicate balance of spreading your credit out amongst numerous cards so as not to approach the maximum on one card and appearing as you are over-extended.

Older is better. A longer credit history is preferred.  Don’t close an old account with a good payment history.

Newer isn't.  Newer credit is considered more risky and will count against you even when you pay it promptly.  Resist the urge to accept the credit card offer at the register even when it is offered with an immediate discount on your purchase.

Variety is the spice of life. Varied credit is treated favorably.  A mortgage, car payment and credit card can demonstrate your responsible use of all types of credit.   

How to Get Back on Track after You’ve Gone off the Credit Rails

  • Check your credit report for errors.  After all, maybe this is not all your fault!
  • Pay off your balance every month or pay as much as you possibly can.
  • Do not max out your cards.
  • Wait a year after credit issues to apply for a mortgage.  Or consult with a mortgage lender for advice and a realistic timetable.   The more distance you can put between your problems and your improvement the better.
  • Do not open new credit cards when you are applying for a mortgage or make any major purchases on credit.
  • Avoid "buy here, pay here" finance companies—even when you pay on time the interest rate is high and may be a sign of poor credit management. 

I asked one of our local mortgage experts, Dan Hartman of Province Mortgage,  to weigh in with his advice on credit scores, here's what he had to say:

Many buyers don't have bad credit, they just have no credit history. Regardless of how they got there, they need to establish a little bit of a track record - why would a bank lend you hundreds of thousands of dollars before you show you can pay on time on a few hundred? A good way to establish credit is to get a secured credit card. This is an account with your bank where you give them a small deposit - $2-300 and they give you a small credit line. Charging just $10 a month on this account and paying it in full each month will increase your credit score anywhere from 50 to 120 points in 6 months, and can help you establish a credit score if you don't have one at all. It's important not to max out this or any other credit card account, as that makes your score go down. 

Another important factor in improving credit score is not to stand on principle. You can't live in principle, after all! Let's say you let your brother get electric service in your name a few years ago because his credit was bad. Of course, that was mistake number one, but we're not judging here. 3 months later, he got shut off, and you start getting collection calls, but you don't pay, because he was the one that was supposed to. Every month that $450 bill from the electric company goes on your credit is another month your score won’t go up. Pay it off and you can see a 30-75 point improvement in 3-6 months. 

Separate note on collections: If you're not going to take care of all of them, don't bother taking care of any. One that continues to report outstanding and overdue month after month will do more damage than you avoid by paying off 4 other bad ones. As long as that damage continues monthly, improvement will be limited, so if you're going to try to fix your credit, be prepared to deal with ALL collection accounts. 

If you want to investigate buying a home and learn how you can accomplish that goal in 2019, contact us.  We have a buyer consultation presentation that we can share with you to get you started, along with many exclusive programs and services that can help you get the ideal home for your situation.