Learn more about Credit Scores in Jeffersonville, IN
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What you need to know about Credit Scores
Nearly 60% of people that reach out to us mention that they’ve already pulled their credit with Credit Karma. That’s great if you are looking for your consumer score, but it’s not helpful when you are looking to buy a home.
Credit Karma uses the VantageScore 3.0 which provides a consumer score, not a credit score. It takes the information from your credit report and turns it into a consumer score. This is NOT what is used in the homebuying process. A tri-merge credit report is used to calculate your credit score.
Is a consumer score the same as a credit score? No, a consumer score is provided by services like Credit Karma, Credit Sesame and others. Consumer scores are based more on credit card activity. Your credit score is more comprehensive and includes credit cards, education loans, mortgages, auto loans, and the likes.
A tri-merge credit report combines the credit information collected from the three national credit bureaus of Experian, Equifax® and TransUnion® into a single report. Mortgage lenders use tri-merge reports as they are more comprehensive. This type of credit report is used in 90% of mortgage lending decisions.
BOTTOM LINE – Don’t waste your time on Credit Karma, call us instead so you’ll know your real credit score from a credit report.
There is a small fee for your credit report, but you get what you pay for. The tri-merge report will provide your current credit score. We can review together and we’ll coach you on ways to improve it, if needed. Credit Karma (and similar services) is free (at the beginning) … but it’s of literally no value in the homebuying process.
What impacts your credit score:
- 40% payment history | Extremely influential in your credit score.
- 21% age and type of credit | Combination of your credit length & credit mix (credit cards, mortgage, auto loan, student loan) is the second most impactful factor to your credit score.
- 20% credit utilization | Use your cards but be sure to not to have more than 29% balance on your credit cards, as the utilization does make a big impact on your credit score.
- 11% balances | Higher balances, especially credit card balances, can hurt your credit score as lenders like to see lower balances for a lower risk of default.
- 5% recent credit | Including opening new accounts or even just applying for new credit can affect your future financial capabilities.
- 3% available credit | Having too much available credit could show that you take out any credit that’s available to you even if you don’t need it.
Things to note:
- Be sure to make those payments on time, as having a late payment has a HUGE impact on your credit.
- Do not max out credit cards. If you have a $5,000 credit line, then the balance should be around $1,450.00 (30% of credit line). Having a high debt to credit utilization ratio reduces the amount of home you can purchase.
- Space out your new credit (cars, credit cards), as it shouldn’t appear like you are going on a shopping spree.
- Keep accounts open, just don’t carry a large balance or any balance.
- Use your credit cards a bit, just so the credit bureaus can see a bit of activity from time to time.
- Take care of collections as quickly as possible. Collections may get included in your score, even if you’ve paid them. The more time in between when they’re paid and when your credit is pulled, the better it will be for your credit score.
- It only costs a couple of hundred dollars and within 45 days there should be improvement to your credit score.
- Never let your balance exceed more than 40% of the card limit. i.e. $500 card = no more than $200 but to be safe I would never exceed $175. A great example is to buy a tank of gas once per month on this card.
- There are some secured cards available that allow you to have a little as $200 limit. Then the most you would want to charge on this card is $80 (40% of the limit) but to be safe I would never exceed $75.
- A secured credit card through either Capital One or US Bank is another great way to boost your credit score. Set a $500 limit and use to purchase gas. Pay down to $5 each month. Within 6 months you’ll see an improvement.
- Remember the secured credit card works much like a checking account. You put the money up and then charge against it each month. However, it reports on your credit report like a credit card.
- Discontinue or do not start “utility-self reported” items to the credit bureaus. It increases your debt, which reduces the amount of home value that you can pre-qualify. The positive impact to your credit score is minimal in comparison to the negative impact on your debt to income.
Check your credit report to be sure that all credit items are being reported to all three of the agencies (Experian, TransUnion , & Equifax.)
Be sure to give us a call when you are ready to dive into your credit report, as every has a unique credit past and we can guide you to an improved credit score.
Give us a call at 812-941-0926 and we can discuss next steps with you!
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