No one can predict the future. Credit scores are the universally accepted way to best determine how someone will handle their financial commitments. Your personal credit score is a major component in the loan approval process but can sometimes seem like a mystery. Understanding what affects your credit score will enable you to maximize your score prior to applying for a loan and ultimately get the best rate for your mortgage.
What is considered a good score?
A good credit score typically falls between 700 and 850.The three major credit bureaus - Equifax, Experian, and TransUnion - use a statistical program that takes into account your active/open credit accounts, any closed and/or delinquent accounts, the portion of your credit limit used on each account and past payment history to calculate the risk of extending you more credit. This risk is quantified as your credit score.
However, you don't have to have a score this high to qualify for a loan, BankSouth Mortgage offers several loan programs that have less stringent credit requirements. Contact a BankSouth Mortgage expert to discuss your eligibility, or continue on to learn about improving your credit score.
How do I maintain a good credit score?
No two credit scoring systems are alike. However, each system does take some common items into account when determining your credit score. According to the Federal Trade Commission (FTC), these are the most common actions you can take to establish good credit and to raise your score.
Pay all of your bills on time. Credit cards are usually not your only bills, so make sure you are remembering things like student loans and doctor bills. This is the most significant factor that goes into calculating your credit score.
Try to spend less than 50% of your credit limit each month. Ideally, using only 30%-40% is best. When you continuously use your maximum amount of credit, bureaus view your spending habits as risky, even if you pay off your full balance. If you are trying to improve your credit, make sure to focus on paying off as many of your balances as you can. Don't forget that closing an account lowers your overall amount of credit, so pay close attention to how your credit utilization percentage may change.
Establish credit as soon as you can and work to maintain positive credit usage. History is usually the best predictor of the future when it comes to financial habits, and the bureaus like to have an adequate amount of history to determine what your habits are.
Space out applications for credit. Applying for too many new accounts in a short time period can negatively affect your score. When offered a discount for opening up a store's credit card, think twice about what that discount could end up costing you on your credit report. If you are trying to improve your credit score, it is usually a good idea to not open any new accounts.
Make sure to balance your amount and types of open credit lines. Having too little or too many accounts can negatively affect your score. In addition, having variety in your accounts can be a plus. Diversify the type of credit cards you have and establish a revolving line of credit, such as a home or car loan, if possible.
While it may seem overwhelming to establish good credit or to improve your credit, it is possible. Contact a BankSouth Mortgage expert for an in-depth analysis of your credit report and detailed professional direction.
How can I dispute an item on my credit report?
According to the Fair Credit Reporting Act (FCRA), both the credit reporting company and the information provider (the person, company, or organization that provides information about you to a credit reporting company) are responsible for correcting inaccurate or incomplete information in your report. To take advantage of all your rights under this law, contact the credit reporting company and the information provider.
Detailed steps on how to contact a credit reporting company to dispute an item on your credit report can be found on the FTC's web site.
How long do negative items stay on my credit report?
According to the FTC:
When negative information in your report is accurate, only the passage of time can assure its removal. A credit reporting company can report most accurate negative information for seven years and bankruptcy information for 10 years. Information about an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer. There is no time limit on reporting: information about criminal convictions; information reported in response to your application for a job that pays more than $75,000 a year; and information reported because you've applied for more than $150,000 worth of credit or life insurance. There is a standard method for calculating the seven-year reporting period. Generally, the period runs from the date that the event took place.
Your credit file may not reflect all your credit accounts. Although most national department store and all-purpose bank credit card accounts will be included in your file, not all creditors supply information to credit reporting companies: some local retailers, credit unions, travel, entertainment, and gasoline card companies are among the creditors that don't.