Many thanks to Amy Cairn with Guild Mortgage in demystifying a few credit score details in relation to buying a house. When I asked her to coach my clients on how we can be prepared for her she gave me this great information. I followed her coaching I achieved a 60 point boost in 9 months! Cheers, Carrie

Optimize Your Credit Score

Everyone wants a great score but most don’t understand how tomaximize their credit score. Knowing the elements of a credit score andimplementing a few basic ideas can boost your score 40-100 points.

There are three credit bureaus; TransUnion, Equifax, andExperian. They use a different matrix tocalculate your credit score depending on who is pulling the credit. If you areapplying for a credit card, auto loan, or home loan you can get three differentscores. The mortgage lender will show alower score then the credit card company since the mortgage “pull” is the mostconservative. Scores range from 350 –850. You will need at least a 620 to get a mortgage and for some home loans you need a 700 or740. The higher your score the betterthe interest rate.

The five elements of credit score.

Payment history35%

Outstanding creditbalances 30%

Credit history 15%

Mix of credittypes 15%

Inquiries 10%

Payment history: the number one thing you can do for the bestcredit score is pay your bills on time, avoid collection accounts andjudgements for late payment. The mostrecent six months will have the biggest impact on your credit. For example, if you have a 30 day late thatreports in the current month, your score can drop 40-60 points compared to a 30day late 8 months ago or longer. 60-90day late payments will really drop the score.

Outstanding credit balances; this is the #1 thing you can do toraise your score and what people don’t know. This applies to revolving accountslike credit cards and home equity lines. You want to keep the balance, even if you pay the bill off in full everymonth, 25% of the credit limit. Forexample, if you have a $10,000 credit limit never charge more then $2500 permonth on that account. Instead of maxingout a card you should spread balances across several cards to keep the balancesbelow 25% of the limit. Use creditsparingly.

Credit History: this is how long you have had credit, the longeryou have credit the better. Don’t close accounts,especially accounts you have had a long time. Avoid new credit card applications, especially from stores like GAP,Best Buy etc that offer you a 10% discount for opening an account. They normally give you a low limit that getsmaxed out and then you forget about the account and miss the firstpayment. These go against the first twoelements.

Mix of credit types; this is having different types of accounts;mortgage, revolving/credit cards and installment loans, like a car loan. The optimum number of credit cards is 2-3accounts and I recommend quality accounts like VISA, Mastercard, AMEX. If you have never had a car loan and can paycash for a car, I recommend opening a car loan, make payments on times for sixmonths and then pay off. This demonstrates you can consistently make the samepayment each month and then successfully pay off a loan.

Inquires; this is when a creditor pulls your credit and it willreport on your credit. This is actually the least impactive element on yourcredit. You are allowed the opportunity to “shop” and have your credit pulledwith less impact. For example, if youare going to buy a car on a weekend and three different dealerships pull yourcredit it will count as one pull. But if you apply for a car, a credit card anda mortgage in the same weekend, that will be three credit pulls.

I am happy to discuss your personal situation and questions.

Amy Cairn, Senior Loan Officer, Guild Mortgage, NMLS #294849


Equal Housing Lender