YOU’VE EARNED A STELLAR CREDIT SCORE… NOW WHAT?

If you’re reading this blog, you probably already know what the term “credit score” means, so we won’t bore you with the details. (If you’re someone that loves all the technical jargon, check out these fancy credit score facts laid out by Investopedia).

Thanks to a great suggestion from our faithful blog follower Deanna, we’ve decided to write a blog to let all of you credit score rock stars know how to keep your numbers high (and maybe even shoot for a perfect 850 if you’re a competitive over-achiever).

Having good credit is important, because it determines whether you’ll qualify for a loan. You already knew that, right?  Did you know that your superb credit score can also earn you a better interest rate and can save you hundreds and even thousands of dollars over the life of a loan?

You’ve worked hard building up a credit score so high that lenders are filling up your spam folder.
So it’s a good time to sit back and chill, right?

Actually, experts recommend that once you’ve earned the bragging rights of being in the upper echelon of credit scores (750+), it’s the perfect time for you to make a plan to stay there. Understanding what goes into your credit score will make it easier for you to maintain a good one.

Five key pieces of information are used to calculate your credit score, according to MyFico.com

1. YOUR PAYMENT HISTORY:

The most important part of your credit score is whether you can be trusted to repay money that is lent to you.

• Continue to pay your bills on time for each of your accounts (no brainer, right?) Any reported late payment = a drop in your score, so don’t be late.
• So we just told you to never be late, but life happens. If you’ve paid a payment late, keep in mind that how late you are matters.  30 days, 60 days or 90+ days – the later you are, the worse it is for your score.
• Unavoidable medical bills? Check out what to do with medical bills on your credit report.
• NEVER let a debt go into collections!  (we really really mean it this time).
• Other important negatives to keep off your credit report: bankruptcies, debt settlements, foreclosures, wage garnishments, and tax debts

2. THE LENGTH OF YOUR CREDIT HISTORY: 

The length of your credit history can work in your favor, (especially if you’ve always paid your bills on time) because it allows creditors to better evaluate what type of risk you may be.

Basically, the longer you’ve shown that you’re good with your personal bills and  finances,  the less risky it is for you to borrow money, so your credit score will raise.
The three major credit bureaus, take into account:

1. how long your credit accounts have been established, including the age of your oldest account, the age of your newest account and an average age of all your accounts

2. how long specific credit accounts have been established

3. how long it has been since you used certain accounts

3. THE NEW CREDIT YOU’VE OPENED:

When you open too many new accounts around the same time, it sends the message that you’re living outside of your budget and very dependent on borrowing money to keep up with your expenses (aka, you’re an over-spender). It’s generally better to open new accounts slowly over time, as opposed to opening a bunch all at once.
TheBalance.Com is a great resource to learn more about how opening a new credit card affects your credit score.

4. THE TYPE OF CREDIT MIX YOU HAVE:

Not all debts are created equal. Making payments on time and keeping debt low aren’t the only ways to keep your credit score in the rockstar range.

Credit bureaus make a distinction between credit card accounts versus student loans, car loans, and mortgages. They want to make sure you can handle a variety of financing. The better the mix, the better your score tends to be.

You may be wondering what types of credit are out there, so here’s the short list.

• Revolving Account: with this type of financing, your payment changes every month depending on your balance. Most credit cards, gas cards, store cards and home equity line of credit (HELOC) are revolving accounts.
• Installment Account: most installment accounts such as mortgages, auto loans, home equity loans and school loans have a fixed payment, so you pay the same amount each month until you finish paying back the debt.
• Open Account:  utility and phone bills are examples of ‘open credit’ accounts and you are usually expected to pay the current balance in full each month.

5. THE AMOUNT YOU CURRENTLY OWE/ CREDIT UTILIZATION RATIO:

Your credit utilization ratio measures how much you owe on your accounts compared with your credit limits.

According to Nerd Wallet, you can be strategic about winning the credit utilization game by using less than 30% of your credit limit.  If you keep this ratio in check, lenders won’t be worried about you overextending limits or being late on payments. They suggest you:

• Track how much you’re charging to each card
• Set up balance alerts
• Raise the credit limits on your cards (but don’t spend more)
• Find out when your issuer reports to the credit bureaus
• Get into the habit of paying mid-cycle

MORE TIPS:

1. If you’ve not heard of Dave Ramsey, this is a great time to learn about his Financial Peace University.  FPU’s Baby Step #2 teaches you how to Pay Off All Debt but the House.

2. Anyone can attain a strong credit score simply by practicing the tried-and-true methods of good credit management: pay your bills on time and keep your debts modest. If you want to move to or stay in the elite group read The 800+ Club: Secrets of people with high credit scores

3. More good news for you: new credit scoring policies went into effect summer of 2017 that were designed to improve the accuracy of your credit report and are expected to benefit 12 million people. Now, experts expect some significant changes to this system.

4. Wondering how to raise your credit score in the future? Learn more about the 7 new ways your credit will be scored over the next 5 years.  And, discover how each tweak might affect your future ability to maintain a good credit score and get approved for a loan.

Fun Fact: There is a difference between a credit rating and a credit score.
Positive credit helps you in many ways and saves you money. Play it smart and you can enjoy the benefits and rewards of good credit without going into bad debt.

For more great information about your credit score, mortgage options and financing information, check out Ruoff Home Mortgage’s blog here: Ruoff Blog