Credit Score

Maintaining your credit score is critical. A credit score is a number value that describes how well you have paid your rent and your bills, including your credit cards, home, auto, and other loans. Borrowers with the highest credit scores get the best loan rates. Borrowers with the highest credit scores get to borrow more money. This holds true whether purchasing a home, a car, or an appliance. Borrowers with the highest credit scores get the lowest interest rates as lenders compete for their business.

Your credit score ranges from a low of 300 to a high of 850. The largest credit-scoring agencies, Equifax, Experian, and TransUnion will give you a free credit score every 12 months. You will need your social security number, your name and birthday, and your address. Go to annualcreditreport.com to get one. Also, your credit card company may give you a free credit score. These sources are more reliable than other free reports.

Residential Mortgage Credit Report

For a home loan, you need a tri-merge score or a residential mortgage credit report (RMCR). A tri-merge score includes the scores from the three largest credit-scoring agencies, Equifax, Experian, and Transunion. An RMCR is not free, but we do not charge up front for the RMCR. The RMCR includes three scores, and we use the middle score. There is additional information on your borrowing habits to help a lender decide how much you can borrow. The RMCR is a stricter look at your ability to repay a mortgage.

The RMCR report and your Credit Karma score are not ever the same. Usually, the report we use will show a lower score. The lower score does not matter much if you have a score of 780, but if your free score is 625 and our free RMCR shows 575 that is the difference between getting a mortgage and not getting a mortgage!

The higher the score, the better your interest rate. Advertised interest rates are just the typical rate for most borrowers. You will find that if you have a low score, the lender wants to charge a high rate, and if you have a high score, the lender wants your business and offers you a lower rate. As noted, you need a score of 620 or higher for a conventional mortgage.

Auto loans, credit card debt, and student loans are a good credit score indicator for lenders if you paid them on time. Late payments, on the other hand, lower your credit score.

We use different credit score minimums for different products. In general, you need to meet the following minimum scores.

What If I Have a Low Score

The best idea would be to increase your score. The following are ways to improve your score from easy to hard.

• Thoroughly check your score and how it was determined. If there are errors, contact the agency to provide evidence of the error.
• Pay all bills early or on time.
• Keep older credit accounts active and don’t apply for new ones.
• Pay off revolving credit or pay down debt.

The agencies calculating your score actually give most importance to timely payments. If you’re forgetful about payments, create a calendar with reminders. If using mail to send payments, send them at least a week in advance. Set up automatic payments in your online bank account. Some credit card companies will automatically draft your account if you set it up on the credit card website.

The next thing the agencies care most about is how you use your credit. If you can’t pay off the outstanding balance and have your credit limit maxed out at all times, you’ll want to find other ways to pay for things. Aim for using 30 percent of your credit limit. For example, if you have a limit of $5,000, try to keep your outstanding balance at $1,500. If you can go lower, do so. The single best approach would be to pay your outstanding balance in full every month.

Credit inquiries can do some damage to your score. If you or an employer or a financial institution is checking your credit, that is considered a “soft” inquiry and doesn’t affect your score. On the other hand, if you are accepting offers of new credit, think of the check-out line of a retail store, then it looks like you need money, and several at once can damage your score.

Look for services that specialize in helping you improve your credit score. These services can give you specific and lengthier advice on improving your score.

What If I Don’t Have a Credit Score?

There are lenders who will look at your bill pay history if you do not have a credit history. If you show you have paid rent and utility bills, for instance, these may be counted.

A new application from Experian, called Experian Boost will track your bill pay history and automatically use it to determine your credit score. Other mobile apps are available to help with reporting rent payments to the credit bureau such as Perch, RentTrack, and UltraFICO.