How can I improve my credit score?

As I am sure you have all heard over and over again, consumer credit plays an important role (if not the most important role) in determining whether or not you will be approved for a mortgage.  Given that there is still heaps of negative and misleading news being distributed about the “difficulty” of getting approved, I wanted to make sure I passed on this information to all of you.

Just recently the three major credit bureaus have changed the way they score a consumer’s credit.  Many aspects of our industry have tightened the reins over the past couple of years and I suppose the credit bureaus wanted to get in on the fun.

I want to pass on some key items that will help you maintain, and even improve your credit during these “tight” times.

• Balances should be no more than 10% of maximum credit limits
• If balances are 90% of limit it could decrease the credit score by 40 – 50 points
• If balances are over the credit limit it will decrease the scores by up to 70 points
• It is better to pay down the majority of accounts to 10% of the credit limit rather than pay down one large account
• Always keep small balances on Revolving Credit (credit cards)
• Make sure cards are used at least once a month to show activity if applying for a loan.  Credit bureaus look for a consumers ability to service their debt so by using revolving debt and paying it down each month (called “massaging credit”) will help with the overall credit score
• New late payments are worse than a bankruptcy 3 years ago
• The score can decrease up to 70 points from one single new late payment (30 days past due date)
• All negative information can be removed prior to the 7 year rule
• As many varieties of open credit as possible will help your credit dramatically (do not exceed 30)
• Seasoned credit (over 2 years old) of all types carry more “weight” than new credit but all credit helps
• Opening new credit and closing credit will hurt your credit for 1 – 2 years
• The more credit you have the higher your potential credit score can go unless you have more than 30 accounts
• Multiple open credit lines will only help improve your score if you manage and “massage” your credit effectively (see item two above)
• New Credit Inquiries: Every time a client applies for any sort of credit this credit inquiry is logged on the consumer credit report
• Inquiries remain on the credit report for 2 years and can hurt the credit for up to one year (stronger credit borrowers will see an improvement in as little as 30 days)
• Consumers should NOT allow credit companies or lenders pull their credit without their approval and when shopping for a mortgage, it is NOT
  imperative that your credit is pulled
• Paying habits: Paying your bills immediately for 6 months will help boost your scores (not on time, but immediately!)

If you are not sure about your current credit status you can go to http://www.annualcreditreport.com to get a free copy of yourr credit reports from all three credit bureaus.

NOTE:  The website “MyFreeCreditReport.com” does NOT offer free credit reports and is often misleading because they use a different credit scoring system that the “Big Three” bureaus.  Be sure to go to http://www.annualcreditreport.com if you want to review your credit.