Improving your Credit Score – Step One

by Tom Tousignant

in Blog, Financial Safety, Home Buying, Refinancing

Know what you are working with!

Credit cards
Image via Wikipedia

If you haven’t seen your credit report in a while, get a copy now.  There is only one place for a truly ‘Free’ report – but it comes with a catch – www.AnnualCreditReport.com will give you a copy, but the catch is you have to pay for your score.  At this point, you don’t really need the score, but you can pay the extra money if you want to.

Other services (with catchy radio jingles) offer free reports, then try to sell you their service.  Use with caution.

When you get your report, you need to decide if you are in one of two camps:

  1. I don’t have enough credit and need more credit history
  2. I have very established credit history, and too much credit.

Your credit score will usually reflect the categories above – if you are below a 720-740 range, you need more or better credit history.  If you are above a 750, your score won’t improve further with more credit accounts, in fact, you probably have too many accounts to keep your score from getting even higher.

Credit scores range from 350-850

The lowest I’ve ever seen is in the 400’s, and I routinely see credit scores in the 800-810 range.  Above 820 is just luck.

What Score do you need?

  • To buy a house with an FHA loan: 620 (Although the FHA says 580 officially)
  • To buy a car:  700
  • For a Jumbo Mortgage:  680-720
  • Best rates on a Conforming mortgages: 740

Above a 740, credit scores are really just bragging rights, but the higher the score is, the more buffer you have in case something happens to your score. If you have an 810, for example, and a credit card payment gets lost in the mail, the late score won’t affect your home mortgage rate. However, if you have a 741, and then make a late payment, you will drop below 740, and then your mortgage rate would be higher.

Step One:

After getting a copy of your credit report – count the number of active “tradelines”, or active accounts that are on your report.

  • More than 4 tradelines:  We’ll probably close some of them down.
  • 4 or fewer tradelines: You will want to get some new credit.

Check back in a few days after you get your credit report copy and we’ll talk specific strategies for both groups.

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