Credit scores for mortgage loan approvals were first introduced years ago, then refined by a company now know simply as The FICO Company. FICO is the acronym for the Fair, Isaac Corporation which developed the algorithm used by credit scoring engines today. For those who are constantly in the mode of increasing their scores to the highest possible number to those who have damaged credit and want to get back on the road to recovery, FICO scores are the single greatest influence for most mortgage programs.
Credit scores are those three digit numbers that range from 300 to 850, with 850 representing absolutely perfect credit. Scores can rise and fall over time depending upon various factors but when negative information is reported, it doesn’t take very long for those scores to drop, many times somewhat dramatically depending upon the nature of the event. For instance, when a payment is made more than 30 days past the due date, there will be a little movement in scoring but with a subsequent late payment made, scores will drop. And once they drop it can take a while for them to get back to where they were. Bankruptcies and foreclosures are also very damaging but not things that cannot be overcome. There are always opportunities to improve credit, it just might not be as fast as one might like.
What are the best things that can happen to your scores? For one, Father Time can help in a couple of ways. One, when negative information is reported, scores will fall but will also be immediately placed on the road to repair. As long as further negative information remains at bay. However, as time passes and the bad mark gets further and further in the rear view mirror, scores will begin to rise. Again, as long as no more late payments are recorded. Consumers can see scores get close to original levels in as little as 60-90 days. Father Time also plays a role in how long credit has been used. Someone with a long credit history will see better scores simply by using credit responsibly over an extended period. Being on time with a credit account for the first few months is fine but being on time over several years is better. Much better.
Another good thing that can happen with scores is keeping a close eye on credit levels. Scores will rise much faster when credit balances are about one-third of the total credit line. With multiple credit lines, it’s the aggregate amount of balances compared to the total overall credit lines issued. This means, especially during the holiday season as consumers spend over the holidays, account balances can grow. A temporary increase in balances is fine but as soon as able, it’s important to review these balances to see how close those balances are compared to credit limits.
The absolute best thing that can happen to your credit scores? We mentioned this earlier but scores are impacted more by payment history compared to any other category. Timely payments, at least payments that are made no later than 30 days past the due date, will sharpen credit scores much more quickly compared to other factors. For example, keeping an eye on account balances contributes 30% to the total three-digit score while timely payments chalk up 35%. These two factors alone make up about two-thirds of the total score.
If you’re someone who simply wants to get their credit scores up to the nosebleed levels, let’s talk. We can evaluate your current credit status and look at reallocating resources from cash accounts in order to get credit balances to appropriate levels. Or, if you’re in the repair mode, I can also help put you on the right path. Either way, I know how scores work. Let’s work together on yours.