3 Tips On Raising Credit Score

3 Tips On Raising Credit Score

You know credit score is important, especially when purchasing or refinancing a home. Here are some helpful tips from a loan officer:

1. Keep your credit card balances under 30% (or less) of the available credit limit - Credit scoring is based on many factors, one is credit utilization as it compares to available credit. For example, if you have a $500 credit card limit and the reported balance at the end of the cycle is $400, your credit score will be lower. Look at an example:

Available Credit/Balance/Ratio

Score before balances paid down

You can see that the credit balances are 70% and 67% of the available credit limit on these 2 accounts. As a result, the credit score is 612. Ideally, for this client we would want a 640 credit score or greater. This will save them .25% on the interest rate and over $10,000 in discount points.

Now look at what paying down the balances do for this credit profile and score:

Projected Score Increase

 An increase to 643 and saving this client .25% on the interest rate and over $10,000 in added cost to the loan. 




2. Change your date of payment - Many of my clients utilize credit cards monthly and pay them down or off monthly. That is a great way to ensure the credit profile is in good standing, but depending on when the credit card is paid may impact your credit score, unknowingly. Some creditors report balances once a month, some twice a month, and some may report daily or even not at all. There have been many instances when reviewing a credit profile with a client they have commented, "Why is this creditor showing a balance. I pay it off every month?" After explaining the way creditors report sometimes the easiest solution is to find out when that creditor reports to the bureaus, and then if you plan to pay off the bill change your pay date to correspond with a time before the credit reports, but with sufficient time to ensure the payment has posted prior to the account being reported. By changing your payment schedule, you can help to ensure the maximum credit score is being reported at any given time during the month.

Here is an open collection for $914 with a score of 605.

3. If an open collection account is paid, will that raise the score? - No one likes a collection account on their credit report, and I believe most people would like to pay it off and clear their obligation. But, doing so doesn't necessarily mean your credit score will increase. Another factor in credit scoring is "Date Of Last Activity". If a person has a recent collection, the damage to the credit score is already done. Paying it off typically will not hurt or help your credit score. But, if there is an older collection on the credit profile and it is paid off, it can actually hurt the credit score because the date of last activity is the day of the repayment.  For home loans, collections are not necessarily required to be paid to consummate a mortgage loan. FHA loans, for example, will allow up to $2000 in open collection accounts and not require a repayment, installment agreement, or other methods of calculating the debt. Conventional/conforming loans on a primary residence do not require open collections to be paid.

Here is the Score after the collection is paid

If you are planning to purchase or refinance a home and have open collection accounts, please discuss this with the mortgage originator to determine if the account should be paid.

JMJ Financial would love to earn you business. It would be my privilege to help guide you through the process and ensure that together we are finding the best solutions to accomplish your goal.

Todd Burns - NMLS 254981
JMJ Financial Group
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