By Geoff Smith
While the idea of maintaining a good credit score seems simple, there is an art to really boosting your scores with the three big credit bureaus. When you want to buy a home, getting your credit score up can sometimes make a deal work, and other times it can simply improve your mortgage interest rates. There are usually things you can do immediately to boost your credit score, and there are almost always things you can do to improve it over time.
Some mortgage brokers have software that allows them to plug in a client’s credit profile and manipulate things like credit card balances and get instant reads on exactly how it will affect the scores from the three main bureaus (Equifax, Experian, and TransUnion). Most buyers have a ballpark idea of what their credit scores are, but few know where they stand against everyone else.
ValuePenguin reports that the average credit score in America is 695. That has gone up dramatically since the downturn in 2008. The dividing line between what the mortgage industry usually considers a good versus bad credit score is 700. If your score is above 700, you will get better rates and have more options. That said, Federal Housing Administration loans can be created for people with scores as low as 590. Those rates and fees are not pretty, so it is important to try to get a rate of 590 up to at least 620. If your credit score is over 760, then you are likely getting the best rates available.
Having a good credit score obviously helps you with more than just getting a good mortgage rate. A good score will get you good rates on car loans, credit cards, and can make you exempt from certain fees when signing up for new utilities. So, it’s imperative to keep working on your score. And to do that, the basic principles always hold true: Stay disciplined, pay your bills on time, and don’t max out your credit cards.
Your credit score is really affected by two things: positive and negative credit histories. Some scores are low because of a negative history filled with late payments, maxed-out credit cards, and numerous accounts in collections. Other credit scores are low due to the person simply not having much of a credit history; these individuals are usually surprised to learn they have low credit because they are proud that they have such a low usage of credit. Not using credit cards or loans of any kind certainly requires a healthy amount of discipline. The problem is, when loan officers are trying to qualify you for a loan, they want to see something that shows your repayment history, and credit scores are the easiest way to do that.
If you don’t have much of a credit history, consider opening two credit cards. Use them each month (perhaps for groceries), then pay them off each month — or at least keep your balance under 30 percent of your limit. You’ll rack up points that can be redeemed for things like travel, and you’ll boost your credit score.
One other thing that catches people off guard are collections showing up on their credit report. These show up a lot with medical bill payments and utilities. If you have a dispute, or see that someone is trying to collect a debt of any kind, do not ignore it. Deal with it as soon as possible because they are quick to put that bill into collections, which will hurt your score. With all the junk mail and email scams out there, it is hard to decipher between what is real and what isn’t, and our medical industry is so convoluted that if you have any kind of procedure other than a routine checkup, it is hard to understand exactly what you are responsible for paying. But if you want to have a top-tier credit score, dig in, figure it out, and either pay what they say you owe, resolve the request for payment by getting your insurance company to pay it, or get them to remove the charge in their system.
Hopefully, this will help you on your next car-loan or mortgage application. There is no time like the present to work on making your credit score better than ever.
*The views and opinions expressed in this column do not necessarily reflect the views of Assurance Financial Group.