Your Credit Score, and How You Control It

In the context of real estate, the Credit Score is a make-or-break factor when it comes to qualifying for financing for a home, or other purchase. Typically, I tell buyers and sellers to be prepared 6 months or more in advance, but when it comes to fixing your credit, a couple of years might be required. Let's talk about credit:

How a Score Breaks Down

There are five main factors that effect a credit score, each contributing a different percentage to your overall score:

35%

Payment history

Have you been paying your loans, credit cards, and other financing instruments on time?

30%

Current total debt

At what point do you have too much debt?

15%

Length of credit history

How long have you held the same accounts?

10%

Requests for new credit

Have you had recent inquiries to your credit?

10%

Types of credit in use

Do you have different types of credit?

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Actions That Lower a Credit Score

There are several key actions that will effect your credit score negatively, and here are some of them:

• Late payments (30, 60, 90 days)
• Unpaid accounts from the past
• Credit limits that are excessive
• Any liens or judgments that are unsatisfied
• Record of bankruptcy or foreclosure
• Too many inquiries (When an inquiry is made for the same type of purchase multiple times in a short period, it does not count)
• Credit utilization (the percentage of total credit being used)

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Ways to Improve a Credit Score

As I mentioned, fixing your credit takes time. It is important that you start working on fixing it ahead of time, even years before applying for a mortgage loan. Here are some ways to help fix the score:

• Pay all bills in full on or before the due date
• Reduce number of credit cards (but instead of using debit, use your credit card for ALL purchases, just making sure to pay on time)
• Refuse pre-approved applications for credit cards
• Don't accept your loan limits on existing cards to be increased
• Try to correct any errors you see on your credit report
• Monitor your credit (as simple as that sounds, many people do not do this [see below]}
  

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The Tool You Should Use

As mentioned above, monitoring your credit once a month is a simple task, especially with free tools such as Credit Karma. I have been using this for years, and it's just a consistent and free way to monitor your credit. It also does an excellent job of breaking down your score for you, so you understand so much more about how to fix your credit.

This seems like a shameless plug, but as always, my goal is to educate. I have no obligation or benefit from mentioning this product, except to help you avoid financial issues because of credit. Hopefully you get as much out of this post as possible!