How To Improve Your Credit Scores
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Lenders will use your Credit Score to help determine the whether or not you will be approved for a loan. It is necessary because they need to determine the risk factor and likelihood that you will repay the loan. If you are a higher risk you will typically have less than favorable programs available to you. If you are a lower risk, you will typically be eligible for the best rates and programs. This is why it is so important to keep good credit scores. However there is no way to improve your Credit Score quickly. The only way to quickly improve your Credit Scores is to pay down debt and to dispute negative information successfully.
Improve Your Payment History
- Always pay your bills on time.
- If you have past-due bills now, get current and stay that way.
- Contact your creditors as soon as you know you will have a problem paying bills on time. Try to work out a payment arrangement and negotiate with them to keep at least a portion of the late notations off of your credit reports.
Keep Debt to a Minimum
- Keep your credit card balances low. High debt-to-credit-limit ratios drive your scores down.
- Pay off debt, don't move it around. Owing the same amounts, but having fewer open accounts, can lower your score if you max out the accounts involved.
- Don't close unused accounts, because zero balance might help your score.
- Don't open new accounts that you don't need as a quickie approach to altering your debt-to-credit-limit ratios. That can lower your score.
Length of Your Credit History
- Time is the only thing that can improve this aspect of your scores, but you can manage it wisely:
- Don't open several new accounts in a short period, especially if your credit history is less than three years. Adding accounts too rapidly sends up a red flag that you might not be able to handle your credit responsibly.
Manage New Credit Wisely
- Several credit inquiries during a short period means you are attempting to open multiple new accounts, and that lowers your credit scores.
- Credit scoring software usually recognizes when you are shopping for a single loan within a short period of time, such as a home loan. If multiple inquiries are necessary, have them pulled as closely together as possible.
- Checking your own credit report does not affect your scores.
- Do try to open a few new accounts if you've had credit problems in the past. Pay them on time and don't max out your credit limits.
How Your Credit Score is Calculated
What is a credit score?
A credit score or FICO (Fair Isaac Corporation) Score is a numerical score based on an individualís credit history, that a measures their credit worthiness.
How are credit scores calculated?
Credit Scores are calculated by inputting the data from your credit report into a program that evaluates it and gives it a numerical score. There are three major agencies; Transunion, Equifax and Experian and although they look at the same data, they may come up with a different score than the others. Nevertheless, the scores will typically be close together and you will usually not see a large disparity between them all.
Which parts of a credit history are most important?
35% - Your Payment History
30% - Amounts You Owe
15% - Length of Your Credit History
10% - Types of Credit Used
10% - New Credit and amount of Credit Checks
Your Payment History Includes:
- Negative public records or collections
- Number of accounts paid as agreed
- Delinquent accounts
What You Owe:
- How much you owe on accounts and the types of accounts with balances
- How much of your revolving credit lines you've used--looking for indications you are over-extended
- Amounts you owe on installment loan accounts vs. their original balances--to make sure you are you paying them down consistently
- Number of zero balance accounts
Length of Credit History:
- Total length of time tracked by your credit report
- Length of time since accounts were opened
- Time that's passed since the last activity
- The longer your (good) history, the better your scores
Types of Credit:
- Total number of accounts and types of accounts (installment, revolving, mortgage, etc.)
- A mixture of account types usually generates better scores than reports with only numerous revolving accounts (credit cards)
Your New Credit and Number of Credit Inquiries:
- Number of accounts you've recently opened and the proportion of new accounts to total accounts
- Number of recent credit inquiries
- The time that's passed since recent inquiries or newly-opened accounts
- In general, checking to make sure you aren't attempting to open numerous new accounts
Your Credit Score only considers items on your credit report. Expenses such as utility bills are not usually reported unless they are seriously delinquent and sent to the credit agencies.
Credit scores range from 350 to 850. The higher your score the less a risk a lender considers you thus allowing you access to the better rates and programs. However, even if your score is less than perfect, it does not mean you are ineligible for a loan. Speak with your loan officer to see what you can truly qualify for.
Let Fidelity First Home Mortgage help you improve your credit. Our loan experts will help analyze your current situation and look for the problem areas, which can be addressed with a refinance. Our knowledgeable staff will help you contact the credit bureaus and help you maximize results. Let us show you how to use your biggest asset to improve your financial situation and save you money.
Click here for a FREE Credit Report.