Credit
Credit score and credit profile
"Credit" consists of credit score and credit profile. Both need to be good to get approved.
Credit score
Credit scores are designed to measure the risk of default by taking into account various factors in a person's financial history. To get the best rates you need a good credit score. Scores range from 350 to 850 - the higher, the better. A high score means lenders generally consider that you manage credit responsibly and are not likely to default on your payments. For that, you will be rewarded handsomely! A low score will more likely result in denial or higher rates. Late payments, maxed-out cards and an excessive number of credit lines could leave your score sorely lacking. Foreclosures or bankruptcies of course can have a significant long-term effect which should be fixed at the earliest opportunity. The average credit score nationwide is around 660. If your score is in the mid-700s or higher, you'll be offered the best rates. If your score is less than 640, you'll pay more.
Credit profile
Your credit profile conisists of the reported elements on your credit report. You can have a good credit score, but if your credit profile includes excessive lates, bankruptcies, collections, judgments, or other derogatory you may still be declined. The thing to remember is there is more to good credit than just scores.
Credit improvement
Credit improvement can consist of credit repair, profile improvement, improved credit behavior, and a few other things. It can be simple, or elaborate - whatever is needed to get you "Mortgage Ready". There can be an expense associated with it. If so, it will easily pay for itself. More information here.
How is your credit score calculated?
The exact formulae for calculating credit scores are closely guarded secrets. The following components are the approximate weighted contributions:
35% - Punctuality of payment in the past (only includes payments later than 30 days past due)
30% - The amount of revolving debt (credit card balances, etc.) as a percentage of total available revolving credit (credit limits)
15% - Length of credit history
10% - Types of credit used (installment, revolving, consumer finance)
10% - Recent search for credit and/or amount of credit obtained recently
Perfect credit habits
By sticking to the following simple credit habits you will develop stellar credit over time. Profile improvements are not automatic and may need your personal follow up, or credit improvement service.
- Keep credit inquiries on your report to a minimum. Apply for credit only if you really want to.
- Pay bills on time (at least the minimum payment).
- Keep card balances below 40% of the credit limits at all times.
- Do not close accounts unless you have to. (Affects length of credit history).
- Do not pay off or contact old delinquent accounts for quick score improvement. It can actually reduce your scores! Speak with me first. Important!
- Make sure you have at least 3 credit accounts. Get secured credit cards here if you are concerned about being declined. (You need secured credit cards - NOT prepaid credit cards).
Various credit topics
- Credit improvement and Mortgage Ready. Read it.
- Mortgages after bankruptcy. Read it.
- Mortgages after foreclosure, deed in lieu, or pre-foreclosure (short) sale. Read it.
- Protecting your credit during divorce. Read it.
- If you miss a payment: Goodwill Adjustments. Read it.
- How to correct credit report errors. Read it.