How Can You Maximize Your Credit Score?

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We’re back with another edition of Rock Talk, my interview series highlighting local business owners in our Denver area. Today we’re joined by Jennifer Thompson from JenniferLoan.com to discuss everything you need to know about your credit score.

How is your interest rate is affected by your credit? It depends on the type of loan you’re doing. For government loans like FHA and VA, you have to have the minimum FICO score of 620 to get the best rate available. If you do a conventional loan, your rate is going to be tiered based on the FICO score and the loan-to-value. The rates go up as your score goes down. It’s in your best interest, then, to have the best credit score possible.

What can you do to help maximize your FICO score? There are five components to consider and focus on improving when thinking about purchasing a home:

1. Payment history. Do you pay your credit on time? Whether or not you pay your credit on time, the length of your positive credit history, and the severity and quantity of any delinquencies you might have all factor into this. Simply paying your bills on time will take care of this component. Also, avoid co-signing on loans, because then their late payments become your late payments.
2. Amount owed. Ideally, you want to keep your balance within 30% of your credit limit. For example, if you have a $10,000 line of credit, you wouldn’t want more than $3,000 charged on that line of credit. It’s also important to make sure you’re not maxing out your credit cards and extending yourself beyond your means.
3. Length of credit history. This can count for about 15% of that FICO score. The longer the history, the better. There is a tendency for people to believe the common myth that says they should close accounts that they no longer use. This isn’t true. If you have a good credit history on a card for several years, just try to use it once a quarter to keep it active. Canceling it can erase that good history and negatively impact your credit score.
4. New credit. This accounts for about 10% of your credit score. Research shows that opening several new credit accounts in a short period of time doesn’t necessarily help you establish the kind of credit history you need to elevate your score. This especially concerns those who want a new house but also want to splurge on retail from department stores (Home Depot, Lowe’s, etc.) that will have you using their own separate cards.
5. Type of credit. You want a healthy mix of credit. The ideal mix, according to the credit bureaus, is having two installment loans and three revolving accounts (credit cards) with balances.

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You have to have the minimum FICO score of 620 to get the best rate available.

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Always remember to monitor your credit. You can get a free copy of your credit report once a year at www.annualcreditreport.com. If you’re looking for an amazing mortgage broker to help you purchase a new home, please give Jennifer a call. Her information is listed in the video above.