Improving
Your
Credit Scores
Credit Scores
Because each borrower's credit score is a reflection of his or her unique credit profile, it is not possible to determine in advance exactly how each item in your credit history impacts your ultimate credit score. No one can tell you, for example, how much your credit score will be affected if you pay off a delinquent account or cancel a credit card.
Different portions of your credit file are given different weights. They are:
- 35% - Previous credit performance (specific to your payment history)
- 30% - Current level of indebtedness (current balance compared to high credit)
- 15% - Time credit has been in use (opening date)
- 15% - Types of credit available (installment loans, revolving and debit accounts)
- 5% - Pursuit of new credit (number of inquiries)
We also know that there are things you can do to improve your credit profile. Some of the factors which may impact your credit score include:
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Timeliness of Repayments: Making your payments on time is the best way to increase your score. Delinquencies, foreclosures, bankruptcies and judgments will decrease your score.
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The Number of Trade Lines: The number of credit cards, lines of credit and other types of credit ("Trade Lines") you have available will affect your score. Try to keep this number in the single digits. If you have too trade lines, this may decrease your score because of the risk that you might not be able to pay off all of your accounts, and this may affect your ability to pay off your mortgage loan.
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You may wish to consider canceling credit cards you do not use regularly or choosing 2-4 cards to use and canceling the rest. If you want to quickly improve your ability to obtain a mortgage, don't cancel any cards. Closing or canceling an account voluntarily it will not improve your credit score, but it will reduce the number of trade lines.
You may wish to reconsider accepting "pre-approved" offers for credit cards, or if you accept an offer, perhaps you should cancel another credit card.
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On the other hand, if you have no trade lines, this will likely decrease your score. Lenders generally want to see that you have some available credit and that you can handle your credit wisely.
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Unnecessarily High Credit Limits: Lenders also consider the amount of credit available (your credit limit) compared to your income when making underwriting decisions. Having credit limits that are too high (relative to your income) can affect your score just like having too many trade lines.
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Credit Card Balances: Your score is affected by having a credit card balance that's above 50% of the available balance. It is actually better to have $2,500 limits on 2 cards that have $5,000 maximums rather than to have one card with a zero balance and the other card having a $5,000 balance.
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Use of The Credit You Have: The amount outstanding on each of your credit cards will also affect your score. In general, the lower the amount outstanding, the more likely it is that your score will be higher.
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Amount of Credit You Have: Whenever you apply for credit, the creditor will obtain a credit report from one or more of the three credit bureaus. Each such credit inquiry will stay on your record and will affect your credit score.
Even if you are turned down for the credit or change your mind and withdraw your application, your credit score will be affected. This is because each inquiry suggests that you are increasing the amount of credit available to you. Before you give your Social Security number to someone, make sure you really need additional credit.
Don't let the fear of inquiries stop you from shopping for the best deal when you need auto or home financing. Recently, the credit bureaus have recognized that borrowers may apply for credit at more than one place for the same transaction.
Generally, the credit scoring companies will consider all auto or mortgage loan inquiries received within a 14-day period as 1 inquiry so the additional inquiries will not affect your credit score. And remember, if you order a copy of your credit report to make sure it is accurate, this will NOT show up as an inquiry on your record.
Want to improve your score? The first step is obtaining a copy of your current report.
Here's how to get your Free
Credit Report
once a year, directly from the 3 credit agencies.
If you prefer, you can also call 877-322-8228.
The free report will help you identify mistakes, but it will not provide you with credit scores.
Next Steps
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