CJC Realty Group

Your Credit Score

Your Credit Score

Your Credit Score

Credit Scores and Ranges

Credit scores are three-digit numbers, ranging from 300 to 850, calculated based on information from your credit accounts. The largest credit bureaus—Equifax, Experian, and TransUnion—gather this data for your credit reports. Your score varies by bureau since not all creditors report to all three, making each credit report unique. Creditors set their criteria for acceptable scores, but generally, these are the guidelines:

– 720 and above: Excellent
– 690 – 719: Good
– 630 – 689: Fair
– Below 629: Poor

Mortgage programs like VA, FHA, and USDA offer low or no down payments and flexible credit requirements. This makes it possible for many people to secure a mortgage with a score that may not be considered excellent. Lenders assess your credit score, income, and debts to decide on your application approval.

Factors That Affect Your Credit Score

The two primary credit scoring models, FICO and VantageScore, consider many of the same factors but prioritize them differently. For both models, the most important factors include:

Factors That Affect Your Credit Score: Your Credit Score

Payment history (35%) is the top credit score factor, showing how reliably you pay bills. On-time payments raise your score, while late ones (30+ days) lower it and stay on record for years. Paying your debts responsibly and on time will work to your advantage.

Credit Utilization (30%): The amount you owe, or credit utilization, is nearly as important as your payment history. It’s ideal to keep your balance-to-limit ratio under 30%, though the lower it is, the better.

Length of Credit History (15%): The length of time you’ve had credit also influences your score. Longer credit histories with consistent, on-time payments are beneficial. While you can’t control how long you’ve had credit, you can manage your accounts responsibly.

Credit Mix (10%): A variety of credit types, like loans and cards, slightly boosts your score. However, it’s not advisable to open new accounts solely to improve your mix.

New Credit (10%): Opening new credit lines results in a hard inquiry, which can temporarily lower your score. Mortgage inquiries within 30 days count as one, reducing their impact on your score.

Ways to Improve Your Credit ScoreWays to Improve Your Credit Score

Improving your credit score requires time and effort, but there are several straightforward steps you can take. The timeline for improvement depends on the specific issues affecting your score. Paying off high balances can improve your score significantly in just a month. If collections or late payments affect your score, it may take months of on-time payments to see improvements.

Review Your Credit Reports: Start by obtaining a copy of your credit report from each of the three major credit bureaus. Review them for errors, such as incorrect payments, missing accounts, or signs of fraud. If you spot inaccuracies, dispute them with the appropriate bureau within 30 days to have them corrected.

Pay Bills On Time: Timely payments are essential. Late payments, particularly those over 30 days overdue, make up 35% of your credit score. Use reminders, digital tools, or automatic payments to avoid missing due dates. A disciplined approach, such as paying bills with a credit card and clearing the balance each month, can also help maintain good credit.

Lower Credit Utilization: To boost your score, aim to pay off your credit card balances every month. If that’s not always possible, keep your balance below 30% of your total credit limit. For optimal improvement, try to lower it to 10%. You can also request a credit limit increase to improve your utilization, as long as your spending doesn’t increase.

Limit New Credit Requests: While soft inquiries (like checking your credit report or allowing your bank to review it) don’t affect your score, hard inquiries do. Applying for new credit, such as a credit card, loan, or mortgage, can temporarily lower your credit score due to the hard inquiry. Limit these requests to avoid unnecessary damage.

Keep Old Accounts Open:: Your Credit Score

Keep Old Accounts Open

The age of your credit accounts significantly impacts your credit score. Older accounts reflect positively on your credit history. If you have credit cards that you no longer use, don’t close them. Closing an account, especially when you have balances on other cards, lowers your available credit and increases your credit utilization ratio. Keep the account open with a zero balance, even on cards that are 10 or 20 years old. Shred the card to avoid temptation, but keep the account open to maintain your credit history and improve your credit score.

Address Delinquencies: If you have delinquent accounts, charge-offs, or collections, it’s important to take action. Catch up on overdue payments and work with the creditor to establish a plan for timely payments moving forward. While this won’t remove the late payments from your history, it can improve your payment record from that point onward.

Consider Debt Consolidation: If you’re juggling multiple debts, consolidating them with a loan or transferring balances to a low- or no-interest credit card could be beneficial. This reduces the number of payments you need to manage and lowers your interest rates, helping you pay off debt faster. Keep in mind that balance transfer fees of 3% to 5% of the transferred amount may apply, but the savings from lower interest rates often make this worthwhile.

Avoid Using Cash Only: While paying with cash may seem like a smart budgeting strategy, not using credit at all can harm your credit score. Lenders prefer to see that you manage credit responsibly. Use your credit cards for occasional purchases and pay off the balance each month to boost your credit score, especially by improving your credit utilization ratio.

Track Your Progress: Credit monitoring services offer an easy way to track your score over time. Many of these services are free and alert you to changes in your credit report, such as paid-off accounts or newly opened accounts. These services typically provide access to your credit score from at least one of the three major bureaus, updating it monthly. Many top credit monitoring services also offer identity theft protection, alerting you to suspicious activity like unauthorized accounts.

Track Your ProgressImproving your credit score is a crucial goal, particularly if you plan to apply for a home or auto loan or aim to qualify for top-tier rewards cards. Be patient, as it can take weeks, or even months, to see significant changes in your score. While the improvements may seem small, every positive adjustment makes a difference. Increasing your score even slightly can help you secure a lower interest rate, potentially saving you hundreds of dollars each month on your mortgage. Keep in mind that credit scores can fluctuate, but as long as your score stays within a healthy range, these changes won’t negatively affect your financial well-being.

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