Every once in a while it’s good to post a refresher on the top credit myths, as well as reiterate what constitutes a FICO credit score:
“I’m shopping for a mortgage and don’t want you to run my credit since that hurts my score.”
While it’s true that running your credit multiple times from multiple sources can negatively impact your credit score, running your credit multiple times from mortgage companies within a 30-day period has the same impact as running your credit ONE time
“I paid off that delinquent debt, so my score should vastly improve”
A whopping 35% of the credit score is based on payment history, so timely payments are the most important component of the score—any late or delinquent history has a dramatic impact on the score, and only time will improve the score…
“I max out my credit cards every month to get lots of points, but I pay them off every month, so I should have good credit”
30% of the score is dependent on the amount utilized in relation to the credit limit, so maintaining low balances and timely payments is the way to go
“I don’t have any debt, so my credit should be great!”
Since length of credit history represents 15% of your score, without a history of credit with timely payments, a pretty low score is inevitable—it’s always best to establish and maintain accounts in a satisfactory manner to maximize your score
“I recently financed a car and got a new credit card, so no problem with credit”
It’s certainly good to establish credit, but recent activity like obtaining new credit and having multiple creditors run your credit affects 10% of your score— the more activity, the lower the score
“I only have credit cards, but I make my payments on time, so my credit should be good”
Credit mix, i.e. credit cards, auto loans, mortgages, etc. account for 10% of your score, so having a good mix of credit only further improves the score
For more details on the above, check out creditcards.com which has a comprehensive article on FICO scores.
Other tidbits that you may find useful in maintaining the highest FICO score include:
- Continue to use the oldest credit card that you have, even if it doesn’t have the most points, etc, as length of credit history is maximized
- Make certain that if you served as a co-borrower on an account that the other party is making timely payments—the other party’s lack of timely payments will hurt you!
- This is especially important in a divorce or similar situation, and it’s recommended to settle and close joint accounts when possible
- Avoid disputing any item on your credit report with the credit bureaus—work with your creditor to resolve issues
For any questions related to credit or mortgages, reach out to your favorite mortgage advisor for assistance and guidance.