How to Better Your Credit Score + Reality of Credit Misconceptions

After going through financial hardships the very beginning of this year, I’ve learned many life lessons that I will take with me going forward. I’ve also been blessed to have a job where I get to help people become homeowners. So talking every day with clients about scores and what to do and not to do, it really made me realize that I have a lot of knowledge that I would like to share with you guys. Now I’m not licensed to be a Loan Officer, but I’m more on the consulting side of things so take this with a grain of salt.

School never teaches us about credit {though I wish they had}, never mind our parents unless we are lucky and have been taught a thing or two from them, but as for me, that never really was the case.

I want to go over a few things that I’ve learned throughout the years and specifically now since I help people get approved for home loans for a living. First off, I want to address misconceptions that a lot of us have about credit or what we’ve heard from our friends and family etc. Then talk about what brings your score down and lastly, what to do to better your credit score.

Paying off debt/Closing credit cards
People think that when you pay off your credit cards or pay collection accounts completely then that is a good thing. I’m gonna break it to you, ever so gently, but no, that is not the way it works because it actually lowers it. Definitely never ever in your life close a good standing credit card account because as soon as you close it, it will lower your credit score, not to mention, wipe out all your credit card history.

While it is good to have good debt such as a mortgage or an auto loan that’s been paid off, some people think that once they pay off a house or a car, that they should remove those accounts off their report and that’s a HUGE mistake. You want to have history of what you have paid off so keep your paid off student loans/car/mortgage on your report {which usually stays on for 7 years}.

Paying off collections
It actually is not a good thing because even if you pay it off, it will still be on your report for up to 7 years and reflects negatively on your overall report. To a lender that says that it was so bad where it got to that point where an account had to go to collections.

Getting approved for a car/cc means you can get approved for a home
Absolutely not! Your score for getting approved for a car/or credit card is going to be completely different than a mortgage score, which is what a mortgage lender looks for.

-Inquiries
-Late Payments
-Collections
-Maxing out Credit Cards

Inquiries
When you apply for a car or a credit card, they do hard inquiries on your credit so it will bring down your score 2 to 4 points each time an inquiry is made. Say for example, you get a car and when you get home you get letters from different lenders who declined you and you know why that is? Because the car dealership you went to shopped you around to several lenders until you finally got approved, ouch!

Moral of the story:
Do not apply for anymore credit or get into debt than what is absolutely necessary {at your discretion}.

Late Payments
Usually companies won’t report your payment late to credit bureaus until it has reached 30+ days. If you end up getting behind on your payments, it can decrease your score up to 100 points or more.

Moral of the story:
Don’t be late if at all possible. Always communicate with your lenders to see what options they have to get you through a rough patch.

Collections
Charge offs and collections are just plain negative accounts on credit reports so if you have any of them, it will surely bring down your score.

Maxing out {High Balance} Credit Cards
When you max out your credit cards or go over the limit, this will definitely bring your score down. Also, if you pay off your credit cards and bring it to a zero balance that will also lower your score. Why? Because you want to show activity each month on your card and keep it at the 30% threshold. For example, if you have a limit of $300, then keep your balance at $90 or lower.

Moral of the story:
Don’t get crazy with credit cards because although it’s tempting, it will hurt you in the long run when you want to apply for a home or an important loan for a business, etc.

Other factors that affect your score: Repos, Public Records, Judgments, Bankruptcy

Paying on time on all your current accounts
Using your credit cards monthly to get gas etc and keep it at a 30% or lower utilization from the credit limit is surely going to bring up your score.

Monitor your credit regularly
While this may not necessarily increase your score, it’s good to keep an eye on your credit on a regular basis {even monthly} in case anything pops up that shouldn’t be there. The site I recommend is Privacy Guard. It has identity protection and it gives you a fresh report every 30 days. It gives you all 3 bureau scores so it’s more accurate and for only $19.99 after the free trial, is not too shabby. Also, it’s a soft credit check so it’s not going to impact your score.

I’m sure there are more things out there that help increase your score, but I’m drawing a blank at this point. Feel free to throw in some knowledge that you can think of.

Was this info helpful to y’all? What are some misconceptions you’ve had about credit reports?

One day I will come home to something like this…

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