Improve Credit Score

Easy as 1, 2, 3

A three-step process to maintaining a good credit score

If you’ve had trouble keeping your credit score as high as you’d like it to be, it might help to simplify things a bit. Below is an easy, three step process for maintaining a high score. Follow these steps and watch your score not only increase, but stay up at the top.

Pay On Time
Paying all of your bills on time has a huge influence on your credit score. In fact, FICO and VantageScore — the two leading credit scoring companies — place the most importance on timely payments. If you’re more than 30 days late on any bill, that can hurt your score. The solution? Make as many bill payments as possible automatic. If you don’t like the idea of auto pay, try setting reminders on your calendar for a few days before each bill is due. Then be sure to go through each reminder and pay the full amount.

Use Less
As USA Today reports, the second-biggest factor impacting your credit score is your credit utilization ratio. That’s just a fancy way of describing how much credit you’re using compared to how much total credit you can access. Keep things simple here by never using more than 30 percent of your credit limit on your credit cards (individually and combined). If possible, keep it even lower than that. You can do this by spreading large purchases across several cards or paying small amounts of the credit balance during the month. The latter method helps keep the balance low and won’t leave you with sticker shock when it comes time to pay the full bill.

Watch It
Now that you’re tuned into the two major factors impacting your credit score, you should also check your credit report a few times per year. You can receive your credit report free of charge from each of the three major credit bureaus once per year, or you may have access through your financial institution. Take advantage of that and check your report for errors and report them immediately. Monitoring your report will keep you abreast of any other factors impacting your score that you need to address.

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Better Score, Better Mortgage

How much a good credit score can save you on a mortgage

One of the first steps in the house buying process should be working on increasing your credit score. Yes, we know. This is not as exciting as browsing potential dream homes online. However, hear us out. If you have the best credit score possible, you’ll save loads of cash on your mortgage. The higher your score, the lower the interest rate on your loan.

Let’s first review some ways to increase your credit score:

• Pay your bills on time, every time. Punctual bill paying is critical, as it makes up 40 percent (the largest portion) of the factors that impact your credit score.
• Keep utilization low. Make sure you don’t use too much of your credit at one time. Your credit utilization ratio (23 percent of your score) should be below 30 percent at all times. That means if you have a credit card with a $15,000 limit, you never want more than $4,500 charged on it.
• Focus on your history. Credit history (21 percent of your score) can help improve your score, so keep credit cards open as long as they don’t have an annual fee.

Now, that you have some tips in mind, here’s some hard numbers to spur you into action:

As CNBC reports, if your credit score is on the lower end — anywhere from 620 to 639 — the monthly payment on a 30-year fixed mortgage for a $266,000 home would be $1,459. You’d also end up paying $259,119 in total interest over the course of the loan. However, if you boost your score to the higher end — from 760 to 850 — your monthly payments would be just $1,209 and you’d pay $169,315 in total interest. The difference in interest paid is a whopping $89,804. It’s time to get going on that credit score.

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3 Common Credit Myths Debunked

Here’s the truth behind these common misconceptions

To say there is a lot of confusion surrounding credit is a vast understatement. We can’t tackle all of the fallacies at once, but we can start to dig into the big misconceptions that lead people astray. Here’s a look at three common credit myths — and the real truth behind them.

Myth: You have one credit score and one credit report.

Truth: You have multiples of both. “You actually have many credit reports, although we tend to focus on those housed by the “Big 3” credit bureaus, Experian, Equifax and TransUnion,” says credit expert John Ulzheimer. Your credit score is not included any of those reports — and you have hundreds of different scores calculated for different purposes. Auto lenders want to look at a score that focuses on how likely you are to repay a car loan. Mortgage lenders want to do the same but for home loans.

A helpful tip is to think of your credit report as a school paper, with your credit score being the grade on the paper. The lender is like the teacher. Each teacher determines how your paper will be reviewed, the grading scale that will be used and what constitutes a passing grade. Lenders determine what scores to use to analyze the information in your report and what score you need to qualify for a loan. So, when you hear people say things like “My score is 750”, that really only refers to one of their scores from one of their credit reports.

Myth: My credit score will keep me from getting a job.

Truth: Employers never receive a credit score and employment decisions are rarely made based on a credit score. What they can see is a version of a credit report. But there are limitations there, too. Employers may be able to obtain a limited copy of your credit report after you have given your permission, but they do not get your score with the report. They only have access to a limited report that excludes any information that would violate EEOC regulations.

How can this impact you? And how often does it, in real life? According to the National Association of Professional Background Screeners, 25 percent of the HR professionals use credit or financial checks while hiring for some positions, while 6 percent check the credit of all applicants. Your credit report can give an employer insight into your trustworthiness and personal responsibility. If your credit records have information about paying back large loans like a mortgage on time, that’ll show you are reliable. If your credit information shows a lot of late payments, that could indicate to employers that you’re not very organized or responsible.

Myth: If you always pay your bills on time you’ll have great credit

Truth: Some people are under the impression that as long as you pay your bills on time, you’ll have perfect credit. “Credit scoring systems certainly consider whether or not you pay your bills on time. In both FICO and VantageScore’s credit scoring platforms your payment history accounts for about one-third of the points in your credit score,” says Ulzheimer. That means two-thirds of the points in your credit scores have nothing to do with whether or not you make your payments on time. Rather, they measure your credit usage, credit age, recent credit and mix of credit. “[So] yes, while you certainly have to pay your bills on time in order to earn and maintain great credit scores, there’s considerably more to it than just that,” says Ulzheimer.

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