We’ve been very fortunate in that we have counseled thousands of home buyers and home owners either for purchase/refinance financing and invariably the topic of the credit score comes up.
It will either be the person who has a 723 and are upset that they do not have an 800 or someone who has had a few hiccups and is trying to obtain the best market rate for their home loan.
With so many myths out there about what does or does not increase your fico score, I’d like to give you 5 Keys that guarantee you a higher fico if you behave the way the tips say to behave.
Tip #1 – Keep credit card balances below 30% – (this is the optimum place to be other than paying the card off each month). Here’s how the credit scoring sees it…the higher the balance, the higher the minimum payment. The higher the minimum payment the more likely you will not be able to make at least the minimum payment if for some reason you have a financial set back of any kind. This is probably the most important factor to increasing your fico score and most people I work with have no idea how this works or impact their score or the rates they pay to borrow money.
Tip #2 – Pay off all collection accounts as soon as possible…a collection account can negatively impact your fico score. One of the most common and frustrating can be medical bills. I see this all the time…someone comes in and has a medical collection for $54 that wasn’t covered by their insurance or misbilled by the service provider and the client will huff and puff and say “I’m not paying it.” I say…oh yes you will, in higher interest rate than you’d otherwise be able to get assuming it was paid.
Tip #3 – Do not close credit cards – so many people make this mistake. The’ve had this one credit card with so and so for 10 years and they open the mail one day and find an offer to transfer the balance to a different so and so for a lower interest rates and some travel mile points. They then call up the long term creditor and say “na nanny na na” I beat your rate and I want to close the card. Then “bam” their fico score drops and they have no idea why. The credit scoring system monitors HOW LONG you’ve had credit as well as if your credit record is good. By eliminating a card with a long history and add this NEW card, you effectively have just cut down the “length of your credit history.” Dont do it…if you don’t want the card anymore…cut it up and keep paying the annual fee…you’ll be happier.
Tip #4 – Pay all bills on time. The credit scoring system does not discriminate on what the amount of the payment was that was late nor the type of account. If you have a 700 fico today and miss a $20 credit card payment and someone else with the same fico misses a $340 car payment and I pull their credit profiles, neither of them will be happy with their score.
Enough said for this post, but if you have further questions, please don’t hesitate to contact us or comment on this blog.
