Tips on Improving Your Credit Score
January 22, 2025 | Posted by: Sherry Corbitt
When you are shopping for a mortgage, there are many things that a lender will look at on your credit report other than what your credit score is. You don’t want to sabotage your chances of getting a mortgage. It’s never too late to start working on improving your credit report, but it’s always better to know ahead of time before you get to the point where your credit is bruised.
What are three of the biggest turn-offs for mortgage lenders?
Delinquency: Delinquency is an unpaid debt on a credit card or loan or even a car payment. It can be any bill that you did not pay. Mortgage lenders don’t like to see delinquencies on your credit report because it tells them that you are less likely to make your payments.
On your credit report, you’ll find a list of every current and passed bill or revolving line of credit. Each of these bills is assigned a rating by the credit grantor. See an example below:
So, for instance, an R stands for revolving credit, whereas an M is for your mortgage, L for lease, I for installment, O for open credit, or C for line of credit. There is also an accompanying number. These numbers correspond with the manner of payment. If you consistently pay your bill on time, you will get a 1. If you never paid anything and it was placed into collections, you’d receive a 9.
Other numbers you might find:
0 - Too new to rate; approved but not used.
1 - Pays (or paid) within 30 days of payment due date or not over one payment past due.
2 - Pays (or paid) in more than 30 days from payment due date, but not more than 60 days, or not more than two payments past due.
3 - Pays (or paid) in more than 60 days from payment due date, but not more than 90 days, or not more than three payments past due.
4 - Pays (or paid) in more than 90 days from payment due date, but not more than 120 days, or four payments past due.
5 - Account is at least 120 days overdue but is not yet rated “9.“
7 - Making regular payments under a consolidation order or similar arrangement.
8 - Repossession (voluntary or involuntary return of merchandise).
9 - Bad debt; placed for collection; skip.
Once you have a late payment on your bill, it remains on your credit report for up to seven years from the original delinquency date (the date of the missed payment). So even if you pay the past-due balance, it will remain on your credit report for the entire seven years. This is true also for any bills that went into collections. Bankruptcies, however, can stay seven to ten years.
So how can you prevent delinquency from happening on your credit report? Most creditors won’t report a missed payment until you’re two months late. Once they do, your credit score can drop by up to a hundred points. So the easiest way to improve your score is to pay your bills on time.
Credit payment history takes up 35% of your credit score. This is why it’s so essential to make your payments on time. Once your bill is marked as late on your credit report, your credit score will drop.
If you are having a difficult time paying your bill, contact your creditor. Sometimes, they will help work out an installment plan with you until the debt is paid off.
1. Too Many Inquiries
Lenders don’t like to see a lot of inquiries on your credit report. This is a red flag because it gives them the impression that you could be in financial trouble. A credit inquiry happens when you apply for a new credit card, apartment, car loan, etc. Each of these inquiries can do what is called a brutal hit that can negatively affect your score. These inquiries can last up to 2 years.
If you’re shopping around for a car, for example, it hits your credit score each time a dealership inquires. Tip: when you do multiple viewings, such as car shopping, make sure they are all within a specific period. Bureaus usually look at the types of credit lines you’re applying for and the size of your loan. You can rate shop without being negatively affected by multiple inquiries if you do your shopping within 14 to 30 days.
2. High Utilization
Another thing to watch out for is your utilization. If a lender sees a large balance on your available credit, it shows that you are living on your credit and aren’t necessarily able to pay off your debt. Therefore, it would help keep your utilization rate below 30% and try to make your payments every month or in whole.
Bottom line? Know your credit score and monitor it. It is always better to be proactive than to find out too late that your credit report is scaring off lenders. It’s easier to fix things before they become a mess. If you feel like something is not being recorded correctly on the credit report, you should call your creditors and Equifax to get it sorted out.
If you have any further questions regarding your credit score, please reach out to me!
Sherry Corbitt, Mortgage Broker
