Where Do I Fit?
I am often asked how important credit scores are and how they can be improved. According to Equifax, one of the three big credit bureaus:
- 800 to 850: Excellent
Individuals in this range are considered to be low-risk borrowers. They may have an easier time securing a loan than borrowers with lower scores. - 740 to 799: Very good
Individuals in this range have demonstrated a history of positive credit behavior and may have an easier time being approved for additional credit. - 670 to 739: Good
Lenders generally view those with credit scores of 670 and up as acceptable or lower-risk borrowers. - 580 to 669: Fair
Individuals in this category are often considered “subprime” borrowers. Lenders may consider them higher-risk, and they may have trouble qualifying for new credit. - 300 to 579: Poor
Individuals in this range often have difficulty being approved for new credit. If you find yourself in the poor category, it’s likely you’ll need to take steps to improve your credit scores before you can secure any new credit
Good News #1
There are three credit bureaus and each calculates a score that is rarely/never the same as the others. In fact, the three scores can vary a great deal from one another. Home lenders always want to know all three. Lenders then typically disregard the high and low and use what is called your “middle score”.
Good News #2
Lenders consider much more than your credit score when making loan decisions. Getting a home loan is not black and white; your credit score is merely the beginning of obtaining a home loan. Perhaps more important than the credit score descriptions above are the topics of income and debt. A buyer with an “excellent” score above may be denied a loan if income is too low or accumulated debt is too high while someone with a “good” score may be able to easily obtain a loan where the income and debt balance is favorable. Although interest rates are higher for the “fair” category, obtaining a home loan is a realistic option – so don’t give up.
Good News #3
Credit scores change. If you don’t like your scores, you can improve them. No, they won’t change overnight, but you can make some changes to increase your score over time. Here are some tips:
- Don’t let your payments slip – find a way to be sure you are never late. If you have a bill pay system, consider automatic payments and be sure your transfer dates allow enough time for your creditor to receive payment by the time they are due. This is the fastest way to increase and decrease your score.
- Keep old accounts open to lengthen your credit history.
- Keep your credit balances as low as you can.
- While credit bureaus reward those with different types of credit (e.g. credit card payment and a car payment), they penalize those with too many lines of credit. This is your debt-to-credit ratio and the bureaus frown on keeping dozens of credit options open. I can’t say what the right number is, but you may not want a credit card for every gas station and store you pass. Consider consolidating some of those by either using a common credit card or just frequenting fewer stores.
- People are often afraid for others to “run their credit”. True, running your credit will “ding” your score, BUT, if you are running your credit at multiple places (e.g. shopping for a home loan or shopping for a car to get best rates), the bureaus will typically only “ding” your credit once as long as the checks are within about 2 weeks of one another.
REMINDER: This is general advice. If you need credit repair assistance, you should consult a credit expert. I just sell real estate:).
Overall Tip:
Check your credit scores from time to time and review your report. Does the information in it look correct? Today’s world of credit card fraud and identity theft is rampant. I’ve been a victim of BOTH. My wife and I had a great deal of money stolen from a bank account a few years ago; eventually, we were able to recover about 90% of what was stolen, but it was not a good feeling and the 10% was still a big number. We immediately subscribed to a credit monitoring service. The service is not inexpensive but a LOT less expensive than what was lost. Since, the service has notified me 5 times of hits to my credit scores. In every case, a collection agency reported another person’s unpaid debts to my account. Repair involved the local police, but it turned out to be lazy employees misfiling reports to my account, not fraud per se. FYI: each hit cost me an average 25 points. I do recommend checking yours and considering a service to protect you and your credit.