Get Smart About Credit

Get Smart About Credit Day is the perfect time to review your credit reports, and start taking action to improve your credit score if you need to do so.

What Factors Determine a Credit Score?

A credit score is comprised of the following five factors: 
  1. Payment History
  2. Balance on Accounts
  3. Length of Credit History
  4. Types of Credit
  5. New Credit Accounts Opened
The two factors that carry the most weight are Payment History (35%) and Account Balances (30%). Improving these two areas, for example by keeping old accounts opened and used sparingly after you pay them down, can positively impact your credit score.

What Is a Good Credit Score?

Credit scores range from 300 to 850. The higher the credit score, the lower credit risk. A credit score of 700 and above is considered good, but it is possible to buy a car or home with a lower score. FHA home loans and VA home loans require a minimum of a 580 credit score compared to the 620 score needed for a Conventional loan.

What Actions Affect a Credit Score?

Credit reports provide up to five reasons why your FICO credit score is at a specific level. Common credit influencers are:
  • Credit Payments – Paying credit payments on time increases a credit score, whereas late payments can decrease a credit score.
  • Bill Payments – Bill payments follow the same rule as credit payments. Consider setting up auto-pay or reminders to avoid late payments.
  • Credit Card Debt – Credit cards have several pros and cons. One of the cons is the debt that can be accumulated resulting from irresponsible usage and high-interest rates. A general rule is to keep credit card utilization under 30% of the credit limit to help demonstrate your creditworthiness. If your credit debt is high, consider creating a personal payment plan to pay off/down debt, starting with the card with the highest interest rate.
  • New Credit and Moving Debt Around – Though having different types of credit is good for a credit report, opening new accounts before getting a home loan can have a negative effect on your credit score.
  • Closing Credit Accounts – Instead of closing your account after paying off your credit card debt, make a $100 purchase each month and pay it off in total to help maintain a longer credit history. Cut up the credit card if it’s too tempting to use.

How to Obtain Your Credit Reports

You are entitled to one free copy of your credit report every 12 months from each agency - Equifax, Experian, and TransUnion. You can order your credit report at or 1-877-322-8228.

A few months before applying for a home loan, it’s a good idea to review your credit reports, so you have the opportunity to fix any errors.

Protecting Your Credit

Checking your credits report regularly can help you to identify issues that could be the result of identity theft. Always be careful when giving out personal information, secure sensitive documents, shred documents containing personally identifiable information and offers to open new credit cards.

On September 21, 2018, a new law went into effect that required Equifax, Experian and TransUnion to let consumers freeze and unfreeze their credit reports free of charge. Allow at least three business days to unfreeze your credit report before you apply for a home loan.

Ready to purchase a new home? Speak with a Certainty Home Loans mortgage professional today about the types of home loans we offer and the amount you may qualify to borrow.

- Oct 18, 2018