How is my credit score determined and How do I raise it?

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Your credit score plays a major role in many financial decisions you make throughout your life, especially when it comes to purchasing a home. It determines whether you are eligible for loans and the interest rates you will receive. Therefore, understanding how your credit score is determined and how you can raise it can drastically impact your financial wellbeing.

Credit scores are typically determined by the three major credit bureaus – Experian, Equifax, and TransUnion – using a formula called the FICO score. This formula considers five key factors, which are explained in more detail below.

  1. Payment history
    Payment history is the most significant factor affecting your credit score, accounting for approximately 35% of the total. This factor takes into account whether or not you have made payments on time and if you have any missed payments or a history of defaults.
  2. Amount of debt owed
    The amount of debt you owe to different lenders accounts for approximately 30% of your credit score. This includes outstanding balances on credit cards, loans, and mortgages. It also looks at the ratio of your outstanding debt to your available credit.
  3. Length of credit history
    Your credit history’s length contributes to approximately 15% of your overall score. This factor considers how long you have had your credit accounts open – the longer, the better.
  4. Types of credit
    Your credit score considers the types of credit you have used, accounting for approximately 10% of your overall score. This includes credit cards, loans, and mortgages.
  5. New credit
    Finally, new credit accounts for approximately 10% of your total score. It considers how many new credit accounts you have opened recently and how many credit inquiries you’ve made in a short amount of time.

    Now that you understand how your credit score is determined, it’s time to discuss some ways to raise your score.
  6. Pay bills on time
    As mentioned earlier, payment history has the greatest impact on your credit score. Therefore, paying your bills on time should be a top priority. If you struggle with remembering your due dates, consider setting up automatic payments or reminders on your phone.
  7. Keep credit card balances low
    Your debt-to-credit ratio is essential, so it’s crucial to keep your credit card balances low. If you can, try to pay off your credit card balance in full each month.
  8. Check your credit report regularly
    Mistakes on your credit report can negatively affect your score, so be sure to check it regularly for errors. If you do spot an error, dispute it as soon as possible.
  9. Apply for new credit accounts sparingly
    Applying for new credit accounts frequently can negatively impact your score. Instead, try to avoid opening new accounts and focus on paying off your current balances.
  10. Keep old accounts open
    As mentioned earlier, the length of your credit history accounts for approximately 15% of your score. Therefore, it’s best to keep your old accounts open even if you don’t use them anymore.
  11. Pay off outstanding debt
    It’s essential to pay off your outstanding debts to improve your credit score. Start with the accounts with the highest interest rates and work your way down.
  12. Aim for a higher credit limit
    If possible, try to increase your credit limit. This can help improve your debt-to-credit ratio, which is a crucial factor in determining your credit score.

    In conclusion, your credit score plays a significant role in many financial decisions throughout your life. Keeping track of your credit report and taking steps to raise your score can make a tremendous difference in your financial wellbeing. By paying bills on time, keeping credit card balances low, checking your credit report regularly, applying for new credit accounts sparingly, keeping old accounts open, paying off outstanding debt, and aiming for a higher credit limit, you can begin to improve your credit score over time.

Financial Fundamentals for First-Time Homebuyers

Financial Fundamentals for First-Time Homebuyers | MyKCM

Are you prepping to buy your first home? If so, one of the steps you should take early on is making sure you’re financially ready for your purchase. Here are just a few of the financial fundamentals you’ll need to focus on as you set out to buy a home.

Build Your Credit

Your credit is one element that helps determine which home loan you’ll qualify for. It also impacts your mortgage interest rate. While there are many factors that go into your mortgage application, a higher credit score could lead to a lower monthly payment in the long run.

So how do you make sure your credit is in the best shape possible when it’s time to buy? A recent article from NerdWallet lists a few tips you can use as you work to build and strengthen your credit. They include:

  • Tracking your credit and disputing any errors that show up on your reports.
  • Paying your bills on time. This includes making loan payments and paying down any open lines of credit.
  • Keeping your credit card balances low. Paying more than your minimum monthly balance when you’re able can help.

Automate Your Savings for Your House Fund

You might also be wondering how you can achieve your down payment savings goals. Bankrate provides buyers with a number of tips to help you save, including searching for down payment assistance programs and ways you can save more, faster. As the article says:

“One of the best ways to save for anything — including a down payment — is to set it and forget it. If you receive a regular paycheck, ask your employer to direct a portion of that payment into a savings account. If you’re a freelance worker or independent contractor, set up a recurring transfer from a checking account to a savings account to establish the routine.”

Get Pre-Approved

As you prepare for your purchase, you’ll also need to have a good grasp on your budget and how much you’ll be able to borrow for your home loan. That’s where the pre-approval process comes in.

Pre-approval from a lender lets you know how much money you can borrow for your home loan. And having that knowledge, plus an understanding of your savings, can help you decide on your target price range for a house.

From there, you can start browsing for houses online and see what’s available in your area in that general price point. This can help you really understand your options so you can start to picture your future home.

For Customized Advice, Build a Team of Professionals

Finally, the best way to make you’re prepared for your purchase is to connect with trusted real estate professionals. Having expert advisors in the industry will help you make strong decisions throughout the homebuying process based on your specific goals, finances, and situation. They know the market and can guide you toward the home of your dreams.

Bottom Line

If you’re ready to get the homebuying process started, let’s connect so you can begin to build your team of professionals today.

Keeping your credit healthy

I have been viewing short videos on TikTok and Facebook Reels on how to deal with debt collectors and collection agencies. I am not sure if they are giving you the best information. I have been in the Real Estate Industry for almost 30 years, have a MBA and also a Licensed Real Estate Instructor. Please listen to my advice, especially if you want to buy a home. Thank you!