What affects my credit score?

There are many things that can affect your credit score in both positive and negative ways. Your credit scores are determined by information which is reported by your creditors to the three main credit bureaus, Transunion, Experian, and Equifax.

If you have high balances on credit cards, talk to your credit card companies about increasing your credit limits, especially on cards which you have a good payment history with. This can help reduce your ratio of balances to high limits, and improve your score (as long you don't max them out again).

Late payments on your credit obligations that have occurred during the most recent past six months carry the greatest weight in regard to credit scoring. Also late payments on newly established accounts may cause a lower score than late payments on older accounts that have had an otherwise acceptable payment record.

Age of your established credit accounts will affect your credit scores. If you close all of your established credit cards and then open up new ones this will have a negative impact because the length of your open credit trade-lines will be reduced greatly. If you have credit cards that you no longer use, it makes more sense to simply cut them up or use them once per year, to keep them active, and continue to grow a longer more established credit history that to close the credit card account once it is paid off. Consult a mortgage professional for more information on ways to improve your credit scores.

It is a good idea to review your credit bureau reports at least once a year. This gives you the opportunity to ensure there is no erroneous information being reported, which could negatively impact your credit score.

The types of credit you have can affect your credit score. You will want to have some installment and revolving debt.

15% of your credit score is based on the length of your credit history. If you have older credit cards, keep them! Even if they have a higher interest rate than your newer cards, it is best to put them in a drawer and use them every six months to buy gas and keep them active. Never close a card account unless you have to.

There is no reason, even if you are Romeo and Juliet, to combine
your credit with your spouse. Having your credit separate gives you
the flexibility to make large purchases that can only help you. For instance, let's say that both spouses have credit scores of 700. To get the A rate they want on their new home they need a 720 credit score. If Mr. Smith transferred his balances to Mrs. Smith's cards, he could possibly raise his score that needed twenty points to re-finance a home. Then they could add Mrs. Smith to the deed, transfer the money back to Mr. Smith's cards and enjoy the 1st class interest rates they deserve.

The credit scoring formula puts more weight on derogatories based on what your monthly payment is. If you are ever short on funds come bill time and have to make a hard choice, a good rule of thumb is to pay the larger bills and, if you have to, wait until you have more funds to pay the smaller bills. Naturally, it is best to budget your money so you never need to use this tip.

Don't pay off your old collections . . . At least until after you have gotten your mortgage, or unless it will be quite a while before you will apply. Why would you ever not want to pay outstanding collections? Because, due to an error in the credit scoring software, when you do and your credit score is recalculated your paid collection becomes the most recent item on your report. If your collection is more than four years old, having a recent paid collection will hurt you more than leaving it unpaid. Once you have your mortgage, be sure to take care of your obligations.

Have you ever looked at your credit report and seen balances that are inaccurate? This is because your credit cards may not be reporting your balance at a time of the month that is most advantageous to you. For instance, let us say your Visa reports to the credit agencies on the 15th of every month. Your bill is not due until the 21st. Even if you pay your bill on time, the credit agencies will think that you are carrying a balance higher than you really are! Call your credit card companies and find out when they are reporting your balance and pay your bill before that date. Doing so can boost your credit score and save you thousands of dollars in interest on a new loan.

Also, watch out for these so-called credit repair agencies you see on the television and in the newspaper. While most of them mean well, they can be costly and ineffective (yes, even the non-for-profits). You are better off taking the time to evaluate and repair your credit on your own.

» DISCLAIMER: The information contained in this article on 'What affects my credit score?' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.