Improving your credit

Your FICO score is a critical factor that can influence if you will get approved for a home mortgage loan.

The FICO score, the standard U.S credit rating, is largely responsible for the terms and conditions (including the interest rate) that you qualify for when you apply for a mortgage.

Determining Your FICO Score

Credit scores are calculated using the credit information gathered from credit bureaus such as TransUnion, Experian, and Equifax. This report contains details such as your employment, where you live, bill paying activity, and legal matters that you are involved in, such as arrests and bankruptcy.

Your FICO score is calculated based on the data in your credit report.  This data is then grouped into four categories, including:

Payment History – Payment history is often used to gauge the likelihood a borrower will default on their loan. That is why paying your bills on time is key to getting a better rate.

Length of Credit History – A long and significant credit history also helps to improve your FICO score. Even if your payment history is a little shaky, your score can still lean on the higher end of the scale based on the age of your oldest account as well as the average age of all your accounts.

New Credit – The amount of newly opened credit and the type of account opened is another factor in your FICO score.

Type of Credit in Use – Consider the different types of accounts you have. Is there a variety that includes credit cards, retail credit, installment loans, finance company credit, and possibly a mortgage? A variety of credit accounts paints a clear picture of your credit profile.

Credit Inquiries – Having your credit pulled a lot in a short period of time for different types of financing can have a negative impact on your credit.

Collections and Charge-Offs – Letting accounts go to collection or charge-off status are negative indicators for your credit score and history of repaying obligations.

Understanding Credit: Different Types

Mortgages – payments on loans for homeownership, includes second mortgages / home equity lines of credit

Installment – closed end loans with set terms and fixed monthly payments. Includes auto loans and consolidation loans. Terms are usually 1 to 5 years.

Revolving – open end credit like credit cards and lines of credit

Student loans – loans for education, loan length and types of repayment can vary

Ideas to Raise Your FICO Score

The good news is that no matter where your FICO score is right now, it can change! Your credit history is a motion picture and not a stagnant
photograph. You can actually make pretty big improvements on your credit in short periods of time depending on your circumstances

Here are our top insider tips to get a raise your credit score:

1. Keep Credit Balances Low

Using too much of your open credit can lower your FICO score significantly. Attempt to keep your balances below 20%. If that is not possible, do your best not to max out your available credit.

2. Pay Your Bills On Time

Delinquency and the severity of it weigh heavily on your FICO score. If you have any judgments or liens on your report, clear those up as soon as possible. Paying off collections and charge-offs from your past helps your credit as well to show your ability to make right with your previous creditors.

The most important period of time on your credit is the most recent 12 – 24 months up to purchasing your home. The more recent instances of derogatory credit that exist, the more it harms your credit score and ability to get a mortgage. The further and further out you get from bad marks on your credit, the less and less it impacts your credit score.

3. Keep Credit Revolving

Though it seems like the right thing to do, you don’t want to close your unused accounts, especially credit cards. Open credit affects your credit usage, as well as the average age of your accounts.

So even if you’ve transferred the balance of one credit card to a newly opened account, keep that old account open and active. A simple way to keep it active is to make small recurring purchases, like gas or coffee.

If you do not have a lot of open tradelines, sometimes opening a new credit card to help develop your credit history can lead to big improvements on your score. This should always be reviewed with your CityWorth Banker before applying for the new card. In some situations, this can lead to lowering your score because the age of the account is so new. Your banker will be able to guide you in the best direction.

4. Review Credit Score Thoroughly

Review the factors of your FICO report completely. Though the credit bureaus try to be as accurate as possible, mistakes are common. Make sure all the information is correct and notify the credit bureau if you found any errors.