Everyone realizes that, when it comes to determining your credit score, payment history matters. What most don’t realize is that payment history comprises only 35% of one’s score.
The second biggest factor, weighing in at 30% considers the amount owed on all accounts versus your total credit line. Keep the balances on your credit cards under about one-third of the credit limit and you’ll help boost your score a good deal. Fail to do that, and you’ll work against yourself.
The remainder of one’s credit score is determined by the amount of new credit (a negative factor), length of credit history (the longer the better), and the types of credit you have (mortgages and loans are better than finance company credit or credit cards). Manage your sources of credit accordingly and your score will benefit.
And btw, when it comes to payment history, mortgage payments matter most, followed by loan payments and auto leases, and finally credit card payments. Most other payments don’t factor in as most other creditors (think utillity companies, insurance companies, etc.) do not report to the credit bureaus. And here’s another thing about payments to keep in mind. As long as you’re not 30 days or more late with your payment, it will still be reported as having been paid timely. So, do whatever you can to be certain that all mortgage, loan and credit card payments are received by your creditors within that 30 day timeframe.
Take care of your credit bureau file, and it will take care of you. If you have questions concerning your specific situation, let me know.
So late yesterday I’m on the phone listening to someone tell me how they’re going about raising their credit score into the “can do a mortgage range”— and I realize that whoever told them how, told them wrong. When it comes to credit cards, it’s not the total amount of the debt that brings you problems. No, it’s the amount you have outstanding on any given card versus the amount of the credit line. This guy was telling me how he’d paid off all of his small balances (totalling $5000) and only had one card with $5,000 on it. That card was maxed out, and lo and behold that little situation was actually driving his credit score (not up, but) down!
30% of one’s credit score has to do with credit usage. Surprising to many, one maxed out $5000 card does way more harm to one’s credit score, than five $3000 cards with $1000 balances each. It’s the same total amount outstanding, but since the amounts outstanding are about 1/3 of the credit limit there is next to no negative impact on one’s score. In fact, low balances relative to credit limits implies conservative use of credit and actually enhances one’s score!
So, if you want to raise your credit score, when you go about paying down debt, bring the balances down relative to their credit limit. Rather than setting a dollar amount as your goal, try setting a certain percentage of credit limit use as your goal. Work those limits down below 33% and you’ll see your credit score rise, rise, rise!!!
I get calls from a lot of people wanting to buy a fixer upper. They’re usually motivated by buying something on the cheap and then investing a good deal of themselves into the property to enhance its value. And that concept works— (drumroll….) when there is enough time and skill to get the work done AND enough money to buy the materials. (I can’t tell you how many houses I walk through where it’s obvious that the people had good intentions but just ran out of money.) It’s easy to do. Fixin’ up houses take chunk money. A hundered here and a hundred there can work for small stuff, but when it comes to buying furnances, roofs, siding, kitchen cabinets, appliances, carpet, hardwood flooring, etc., etc., etc. you need chunk money. and if you don’t have the cash on hand then the project stalls out or the cost gets put on credit cards. Neither strategy works and inevitably puts people in a real bind.
A far better solution is to start out with a 203K loan. The 203K is a government loan, a FHA product. It provides the funds to both buy a property and to fix it up. The total loan amount is capped at $295,550 and the required cash down payment is just 3.5% of the total. The money is parceled out as the work is being done. And the interest rate is (right now) somewhere around 3-4%. Now, that sure beats paying credit card interest rates or letting your project (and the home of your dreams) die a slow death.
Be smart- do it right! If you’d like to get all the details, call me.