700 Credit Score
One of the most important things prospect home buyers need to focus on is their credit score. All lenders make their decision based on how the credit score of a client is. Some lenders may have easier guidelines than others, but most lenders requires a decent credit score. With that said, here are the guidelines to keeping your credit score healthy and in the 700 range:
- Never make a late payment – any late payment can drag your credit score by as much as 30% and it has a high impact on how the credit bureau evaluate your creditworthiness. If you’re 30 days late the credit bureaus are alerted and quick to update your credit report with a 30 days late so creditors are aware that lending to you may be risky if you have a history of not paying on time.
- Avoid derogatory remarks – any judgments, collections, bankruptcy, foreclosure, repossession, etc., could drastically bring your credit score down by as much as 25% or so. These types of negative remarks are frowned upon and lenders may also require a waiting period before lending any more money to you. So to prevent being held back from getting a loan, especially to buy a house, avoid getting into any financial dispute that may result in a derogatory remark on your credit report. Know your financial obligations and what you’re getting into beforehand so you can take better care of it.
- Don’t max out your credit card – overusing your credit cards is never a good idea and may be hard to pay it back. Using more than 30% of your credit card limit could decrease your credit score. A high balance indicates you’re using too much credit and can be of high risk to lend to. To avoid slowing down your credit score stick with using less credit and you’ll be better off. As a rule of thumb, only use 30% of your credit limit so it doesn’t lower your credit score. It’s easier to manage credit once you don’t owe as much.
- Length of credit history – this one may not seem like a big deal, but credit bureaus judge your credit based on how long you had credit for and how well you managed those credit accounts. The longer the history, the better your credit score. Therefore, avoid closing your oldest revolving credit card account unless you absolutely have to, otherwise it could shrink your overall credit history and lower your credit score as a result of it.
- New credit opened – the more new accounts you have opened the more your credit score will drop. New account decreases the length of your credit history, resulting in a lower credit score. In addition, to open a new account most creditors have to do a hard credit pull, which also drops your credit score. To prevent your credit score from going down, only open a new account as you see fit, otherwise wait a while before opening a new account.
- Credit inquiries – these are the least amount of concern to the credit bureau. If you’re just shopping around it won’t do much harm unless you’re at a very fine line between good and fair credit, which can be a difference of only 2-5 point. Credit inquiries becomes more of a concern when an actual new account is open, more points are taken away from your credit score because of it.
In Summary:
Having and managing your credit is a great feeling, it provides a lot of freedom and peace of mind at times of need. It’s a good tool to use to be able to obtain the things you want in life. But with privileges comes responsibilities. If you weren’t sure how to properly manage credit before and have made some mistakes in the past, no problem. Just follow these simple guidelines and you’ll begin to build good credit again.
As a benchmark, use the following credit score deciding factors below to remember the impact of it on your credit score. The numbers aren’t an exact science, but it helps paint a better picture based on importance and how the credit bureaus operate. Don’t worry too much about the low percentage ones, since it won’t affect your credit score that much, but keep a close eye on the high percentage ones such as late payments, derogatory remarks, and over utilization of your credit cards. That will have the max amount of impact on your overall credit score.
- Late Payment = 30%
- Derogatory Remarks = 25%
- Credit Utilization = 20%
- Length of Credit History = 12%
- New Credit Opened = 10%
- Credit Inquiries = 3%
