12 SECRETS to Improve Your Credit Score in 37 Days or Less

What is a Credit Score?

Many people come into the office and ask what a credit score is and how it affects their world. If you have a Social Security number, then your world is affected by the credit scoring system. In a nutshell, a credit score is a numerical value that rates the level of credit risk you are to a potential creditor based on other creditors' experiences with you in the past. Over time, the credit scoring system has been refined to the point where it is a reliable gauge that allows creditors to make credit decisions based on the range a credit score falls into.

Historical data strongly supports the fact that a person with a higher score is more likely to pay his bills on time than a person with a lower score. The higher the score, the lower the risk for the creditor and the better the terms for the borrower.

Who Generates the Score?

There are three different credit bureaus: Equifax, Experian, and TransUnion. Each company has its own proprietary model used to calculate its score. Although it could happen, it is rare for all three bureaus to generate the same exact score because they are all using their own unique model to generate a score. As you read this book, you will notice that I use the word "score", which in most cases could be interchanged with "scores" because the secrets I am teaching you generally apply to all three credit bureaus, and the unique score they each generate.

In case you ever need to contact one of the bureaus, here is their contact information: Equifax: 800-685-1111 or www.Equifax.com Experian: 888-397-3742 or www.Experian.com TransUnion: 800-916-8800 or www.TransUnion.com How is a Score Generated? In the mortgage industry, scoring models are used to generate scores that typically range from 350 to 850 points. There are some variations with other models that go a bit higher than that, but the traditional models used in the mortgage industry are Equifax: Beacon 5.0, Experian: Fair Isaac, and TransUnion: Classic 04. There are five major factors that go into determining your credit score.

There are also 100 elements within each of those five factors, so there is really a total of 500 elements that are looked at instantly by the computer that goes into calculating your score. The five major factors are: Payment history: 35% of your score Outstanding debt: 30% of your score Length of credit history: 15% of your score Mix of credit: 10% of your score New credit and inquiries: 10% of your score This book will go through each of these factors individually and break down the things to do, and the things to avoid doing that will most likely have a positive result in the scoring models. Whether you consider it good or bad, there is a max point threshold per factor that limits the influence any specific credit event can have on your score. For example, one late payment may not drop you into the 500 s, and conversely, one perfect trade line may not push you into the 800 s.

When a score is generated, the system starts at zero and adds points based on the 500 variables related to your credit history until it arrives at a score. You must have at least 350 points to generate a score; if you don't, the system comes back with no score. You could have a score as high as 850, although it is extremely rare to see a score that high. In fact, the highest score I have ever seen was from a man in his 60 s that had a score of 846. Certainly, this gentleman had a long history of responsible credit management.

How Long is a Score Good For?

A credit score is a snapshot in time and is only good until something on the report changes, which could be as simple as your credit card company uploading their monthly report to the bureaus. Your score could be 740 today and be higher or lower tomorrow if something was reported to the bureaus in between that time. It could also stay the same for two or three weeks because the score will not change until something new is reported. Once new data is introduced into your report, the system makes an analysis, and an updated score is generated.

Why are Mortgage Credit Scores Different from Scores Provided by Credit Card Companies, Car Dealerships, and Credit Monitoring Services? Each bureau has multiple models that a potential creditor can choose from, and each model weighs assorted variables differently. In the mortgage industry, we are giving you a 30- year installment loan, therefore, we want the factors that are considered in your score to be weighed towards the installment side of things. You are not likely to find credit card or car loan creditors using Equifax: Beacon 5.0, Experian: Fair Isaac, and TransUnion: Classic 04 as their basic scoring models.

People come into the office all the time and say, "Hey, I already ran my credit this week when I was looking for a car, and I have a score of 700." That is nice to know, but it is likely that the score we pull will differ because the car lender was most likely using a credit model that the auto industry uses as their standard. Therefore, be careful if you run your own credit on the internet or if your credit card company gives you a free credit score. The score you receive may be useful in giving you a general idea of how your credit is doing and in which direction it is going; for a mortgage loan, however, we still need to run our own credit report, and the score generated by the approved mortgage models may be higher or lower than the score you acquired through some other source. The likelihood that you're getting the exact same model with the same score that we're going to pull is not very high.

I have seen a few cases where the credit score source did use the same models we use in the mortgage industry, but it is rare.

What if You Don't Have Any Credit?

Many people who are just getting started in life and want to buy a home come to see us and say, "I have only been on my own for a little while. I don't have a long credit history. I have this car and/or small credit card, but I don't have a whole lot going for me." That's okay! There are alternative sources of credit that we can tap into to get through the underwriting process and still get you into a home.

We can use a credit history on your cell phone bills, utility bills, car insurance, and those types of things. We are just trying to establish that you are responsible and that you have good habits of making your payments on time. So, even no credit as defined by a traditional credit report is okay; we can work with that. No credit is better than bad credit.

With that being said, the loan programs are limited for situations like that. It is better if you can establish more credit through traditional trade lines because more loan options will be available to you.

How Do You Get Someone to Give You a Chance to Start Building Credit? Getting started can be tricky because most creditors don't want to take a chance on someone who has no credit history. If you are in this situation, one suggestion is to use secured or pledged funds (I did this with my children). Some banks or credit unions will give you or your child a credit card as long as there are assets set aside to secure or cover the credit limit on the card.

For example, if you put $500 in the pledged account, you would receive a credit card with a limit of $500. The money in the pledged account is not accessible to you or anyone else and sits there as security, just in case the person who was given the credit doesn't manage it properly. This is a low-risk proposition for the bank because they already have the money sitting in an account if they need to use it to pay off the credit card for some reason. This is a great way to get started with credit if nobody wants to take a chance on you.

If for some reason, your local bank or credit union does not offer a secured credit card, consider www.CreditBuilderCard.com or www.openskycc.com which both offer secured credit card options. I personally like CreditBuilderCard because they usually report to all three bureaus within three to four weeks of getting the card and they let you get two cards at the same time to build credit even quicker.

The first major factor that contributes to your score is payment history. This is the biggest chunk of your credit score and makes up 35% of your score. It reflects and tells potential lenders how you have paid your bills in the past. Things that will affect this negatively are late payments, collection accounts, past-due accounts, public records, judgments, bankruptcies, tax liens, etc.

Can One Late Payment Really Make a Difference?

If you make your payments on time, you will likely have a great credit score. Even one 30- day late payment on a revolving account (e.g., a credit card) or an installment account (e.g., a car) can substantially drop your score. You could go from 750 to 680 with just one 30-day late payment. In the world of mortgages, that swing in a credit score could cost you thousands of dollars in higher interest. So, it's worth paying attention to and making sure that you make your payments on time.

What is the Safest Way to Always Have On-time Payments?

Automatic payments will ensure that you don't forget or overlook a payment. There have been countless situations where an automatic payment would have kept a person's payment on time and kept a score from going down, which then kept them from buying a home at that time. In most cases, by the time those clients got their credit back on track and came back to buy a home, house prices had gone up, and the same house cost thousands of dollars more. Imagine forgetting to make a $25 minimum payment on a credit card and having it ultimately cost you over $30,000.

You don't want that to happen, and I don't want that to happen to you either. So, make a note right now to set all your monthly payments on autopay. You can set all installment debts on an auto-pay option and then do the same for revolving accounts so that either the minimum payment or the entire balance gets paid each month automatically. Do it!

What is an Installment Loan?

An installment loan is a loan that has a fixed amount borrowed over a certain number of months with a fixed monthly payment that does not change. Examples of typical installment loans are student loans and car loans.

How Do Installment Loans Report?

An installment loan has a fixed monthly payment that is due on a particular date of the month. Installment loans are reported to the credit bureaus in a very simple way. The bureaus ask the question "Paid as Agreed?" and the creditor answers "Yes" or "No" according to whether or not the borrower made a payment that month according to the loan agreement. That's all they can say, yes or no.

As long as you make the payment on time, or even within 29-days of the due date, the creditor has to say it was paid on time. A loan payment is never considered late, as far as the credit bureau is concerned, until it is 30-days past the due date. As soon as you go over that period, however, the payment is late, and your credit is going to take a hit.

What is a Revolving Credit Account?

Revolving credit is different from installment loans. Revolving credit usually has a limit, and the balance on this type of account can be run up and paid down over and over. Monthly payments are usually based on the balance, and the interest rate is typically adjustable. Examples of revolving credit include credit cards, overdraft accounts on your checking account, and lines of credit.

How Do Revolving Credit Accounts Report?

There is a lot of information that goes into the reporting of a revolving account. With an installment loan, the only information gathered is either "yes" the payment was made on time or "no" it wasn't, but a revolving account reports details. The creditor reports the current balance, the credit limit, the minimum payment due, the date the payment was due, and the date the payment was made.

Does It Matter When You Make the Payment on a Revolving Account?

The reported information on revolving accounts can be used to your benefit to generate a higher score if you know how to play the system. Most credit cards accrue charges through a certain date of the month and then give you a 25-day grace period before your payment is officially due. What most people don't know is whether you make your payment before, on, or after the due date factors into your credit score. So, if your credit card statement ended on the first of the month and the payment was due on the twenty-sixth of the month, you could jump online and make that payment as soon as the statement was issued, and the creditor would report you to the bureau as making your payment over three weeks before it was due.

Imagine how favorably the system would look upon you for making a payment three weeks early. Do that consistently on all your revolving debts and watch your score increase! You could also make the payment on time, which would be considered the norm. You could even make the payment past the due date, which would cause you to incur a late fee from the creditor.

You would still not technically be reported as 30-days late, however, until you went 30 days past the due date. Obviously, since the system tracks the number of days a payment is made before it is due and rewards you if you pay before the due date, it also penalizes you if you pay after the due date, even though it will not show anywhere on your credit report that you were late. This is a very subtle thing that most people don't realize is going on, but now you can take advantage of it and boost your score.

Is There Any Benefit to Paying More Than the Minimum Payment? Something else the bureaus track is whether or not you make more than the minimum payment. This only applies to revolving accounts, but the system tracks the minimum payment due and compares it to the payment made. You may have a $25 minimum payment due, but go ahead and pay an extra $10.

We don't know exactly how much extra is needed to boost the score, but we know that paying more than the minimum due will boost the score. Remember, the bureaus' scoring models are proprietary, so they are not going to publish the details because people would use the information to manipulate the system. I would recommend paying at least $5 more than the minimum amount due and, if possible, paying $10 extra.

The second major factor that contributes to your score is outstanding debt. This makes up 30% percent of your score. This factor considers how much is owed on all your accounts, how many of your accounts have balances, and what percentage of your available credit is being used. Your "credit utilization" rate or ratio is one of the most important items that can affect your score.

It is the amount of revolving credit you are currently using, divided by the total amount of revolving credit you have available, and is expressed as a percent. The scoring system takes into consideration the credit utilization ratio on all your revolving credit as a whole and individually on each revolving trade line. Historically, certain thresholds or percentages of usage have been extremely accurate in determining whether a credit score changes to be higher or lower. For example, experience has shown that 30%, 50%, and 100% are major lines in the sand that are considered favorable or unfavorable depending on which side of that number you are on and will have a direct impact on your score.

Let's say you have a particular credit card that has a limit of $1,000. If the balance on that card is $1,050, you have exceeded the limit and will be assessed a double penalty for going over the limit; your score would reflect the risk associated with owing more than the limit. In theory, if you were to bring that balance under $1,000, your score would increase. Continue to lower the balance to $500 or less (50% utilization), and the score should improve again.

Lower it now to $300 or less (30% utilization), and the score should improve again. My experience has been that the system is being constantly refined based on data that the bureaus gather, and (in addition to these historical standards) there are now numerous lines in the sand between the 50% and 100%, 30% and 50%, and 0% and 30% utilization rates. In some cases, I have even seen that paying a card down to $10 will result in a higher score than paying it down to $0. As it was pointed out in the beginning, unless you work for the bureaus and know their proprietary formulas and models, this is not a science that says if you do X, you will get Y every time.

Nonetheless, the principle is sound, and experience has shown that a lower utilization rate will result in a higher score. Remember, the score is a representation of the amount of risk a potential creditor is facing if they decide to lend you money. A strategy that could help if you have a revolving account with a high utilization ratio, would be to spread that balance over a few cards instead of having it all heaped into one. Let's say you have a credit card with a credit limit of $10,000 and that it has a balance of $9,000.

The fact that the utilization rate on that card is 90% is definitely affecting your score in a negative way. If you were to transfer $6,000 of that balance to two different cards ($3,000 to each card) that each had limits of $10,000, then you would have three cards that all have a 30% utilization rate rather than one card at 90%. Having three cards at 30% utilization would result in a better score than one card at 90%. Now, if you try to open new credit lines or new credit cards to do this, it gets a little trickier.

Instead, you would want to make the transfer to existing cards because once you start opening new trade lines, you are going to get hit with inquiries and recent credit accounts that have no history. Those risk factors will likely decrease your score and wipe out the benefit you were hoping to see by spreading out the debt in the first place. If that is your situation, the strategy will still work, but it is a long-term strategy that is going to take 6 to 12 months to happen because it will take that long before the inquiries start to fade and the new credit lines have a history that is looked upon as being positive, or at least not negative.

Remember, a credit score is a snapshot in time, and small changes within a very short period of time can affect it-whether it is positive or negative. If you are planning to make a large purchase (such as a home or car) where you would benefit from a higher score, I would recommend a little credit-score planning before making that big purchase. Certainly, there are things like late payments or collection accounts that cannot be adjusted or tweaked a month or two before making a large purchase. You could, however, strategically pay down your revolving debt to consciously hit certain thresholds that would result in a higher score once you are ready to take that snapshot.

In a perfect world, you would try to get all revolving accounts under 30% utilization a month or two before pulling credit. If you know the exact reporting date of each creditor, you can get very specific and strategic. If you don't, however, all you can do is pay down your debt and let it sit. Each creditor reports to the bureaus on a specified date of the month, and if the balance is updated prior to that date, you benefit from the lower balance; if not, you do not.

Once your information is reported, it stays that way until another upload is made by the creditor to the bureaus, which usually happens only once a month. Something else to note is that getting the balance on a card with a limit of $1,000 down to $300 will have the same positive effect as getting the balance on a card with a limit of $10,000 down to $3,000. Therefore, if you need to increase your score as quickly as possible with the least amount of cash, be sure to focus on the cards that have the lower limits because it takes less cash to get them down to 30% (assuming we are comparing cards with similar utilization ratios).

Will Closing Old, Unused Accounts Help Your Score?

The answer is no. A decade ago, there was an element of truth to closing old, unused accounts because the prevailing thought was that someone who had a lot of open revolving credit lines could suddenly go crazy one day and create a ton of debt over night. Since then, sufficient data has been collected to prove just the opposite is true-people who have large amounts of unused revolving credit are typically responsible and do not tend to break down and suddenly use credit foolishly. Accordingly, the models have been adjusted over time to reward those who have large amounts of unused credit available to them.

Another reason to not close old accounts is that they are part of your "credit history" and contribute in a positive way to show that you have been trusted with credit for a long time. The longer your credit history, the more likely you are to have a higher score.

Some people come to see me and, with great pride, declare that in preparation to purchase a home, they have closed all their old, unused credit accounts-along with any that have ever had late payments on them. This is misguided thinking, and when we pull their credit, these clients quickly see the irreversible damage they have caused. Closing an account with a late payment does not make the late payment disappear; it is still there. Closing the account only hurts you by reducing the length of time active credit lines have been in existence.

Please do not ever close any credit line on purpose unless you already have a healthy breadth and depth of credit history, whereby losing that particular line would have little to no effect. If you feel you must close accounts, then start with the newest accounts that have the least amount of history to lose. Some people are also torn regarding whether or not to close a card that is rarely used that has an annual fee. If that is your main source of credit history and you have no plans to use or need a credit score for major purchases in the near future, you may choose to obtain new credit lines and then cancel the card that has a fee.

Realize your score, however, will likely decrease until the new cards have built up some history. If you already have a strong history with multiple accounts, then canceling this one card will probably have little effect on your score. Even though closing an insignificant card may not wipe out the rest of your stronger, longer-history credit lines, you need to consider that closing any of your revolving accounts will cause your overall debt-utilization ratios to go up. The system looks at the total credit available to you on all your combined credit sources and compares it to the amount being used-the total amount in use divided by the total amount available.

A lower percentage of utilization results in a higher credit score. You can easily see that closing all but one card, your favorite card that you use all the time, would lower the available credit and increase the percentage of available credit in use, resulting in a lower score. So again, don't close a credit card on a whim without thorough consideration. One more thing worth mentioning is that you can drop your score by 50 to 100 points immediately if you go over the limit on a credit card. Watch that very carefully and don't max out or overcharge a credit card account.

The third major factor that contributes to your score is length of credit history. Length of credit history makes up 15% percent of your score. This considers the following: How long you have had credit. How long it has been since your last late payment. How long it has been since you last opened a new account. How long it has been since your most recent date of last activity on an account.

Should You Avoid Applying for New Credit?

It is worth pointing out that acquiring new credit is not necessarily a bad thing. It all depends on your risk classification within the system. There are 16 different risk-rated buckets you could be placed in based on your history and the perceived degree of risk you currently bring to a credit situation. To show this in more detail, let's consider the results of an identical action on two different individuals in different buckets.

Assume that because of a long history of using credit responsibly, the first individual is in a lower-risk bucket. Now, consider someone else who is young, who only has a short history of credit, and is in a higher-risk bucket. If both individuals apply for new credit with the exact same company, these actions may be viewed differently. For the lower-risk individual, the request may be viewed as favorable or neutral because people in that bucket have proven over a long period of time that they do not abuse credit and that they are responsible.

In the case of the higher-risk individual, the system might look at that and factor in a negative score adjustment for the possibility that the person is applying for credit out of desperation or a need for credit to live on. When you acquire a new card, if you have poor credit, the first 10% of available credit is used as a negative because the system assumes you are trying to live on it. Will Being Added as an "Authorized User" to Your Parents' Account Help Your Score? Being added as an authorized user on someone else's credit card will show you as having another trade line on your credit report.

It doesn't, however, always get factored into your score. I've seen it go both ways; sometimes, the creditor will report you as an authorized user who only has access to the account. Other times, I have seen the creditor report the authorized-user status and also allow the card's history to be reflected in the score. In the end, whether or not this strategy would affect your score is dependent on how it gets reported by the creditor.

For example, I helped a young man who had no credit history at all achieve scores over 740 within 60 days and the "authorized user" was one part of the strategy we used to get him there. Some things you can do to improve this area are: Leave accounts open that you've had for a long time. Try to use them periodically so that they will report a recent "date of last activity" and a long history. Optimize your mix of revolving credit.

An optimal mix of revolving credit is going to be about three credit cards. One that is at least 24 months old and two that are at least 12 months old. If you don't have three credit cards, don't just run out and get more cards; make sure to look at your entire credit picture and have a strategy. An overdraft line of credit on your checking account counts as one of those three, so you may already be there and don't realize it.

Be aware of the date that your revolving creditors report to the bureaus. Remember that the utilization rate (balance divided by the limit) affects your score. The challenge is that you may pay your card to zero on the fifteenth of each month, but your creditor reports to the bureau on the first of each month. In between the fifteenth and the first, you might have charges on your card, and whatever that balance is on the first is what is reported and determines your score.

With a little research, you can know each creditor's reporting date and then strategically pay your cards to zero a few days before those reporting dates.

To keep a revolving credit line in a position where it carries the most weight and is helping your score the most, it needs to be used at least once every six months. If that is not the case, the long-term history of that account is still considered and affects the score, but the portion of your score that comes from recent activity starts to fade. Knowing this, you may choose to rotate your credit cards periodically and use them to buy a tank of gas at least every six months so that you maintain "recent" activity.

The fourth major factor that contributes to your score is credit mix. This makes up 10% of your score. The best mix of credit would be a mortgage, a car, and one or two credit cards, all paid on time for one to two years, that's going to give you a great score. Now, you can still have a good score without a mortgage; a lot of people ask about that.

They say, "I have paid off my house; now is my credit score going to go down?" The answer is that if you don't access the credit system at all, eventually, a lack of activity will start to affect your score; you won't have enough activity to generate a score. I've seen people who are at a later stage in life, who pay cash for everything and don't even have a credit score. For some people, that doesn't matter because a credit score is only important to you if you are planning to make a purchase that is influenced by a credit score or if your insurance company is checking them and rating the cost of your insurance based on your score. You can still have a good score, even without a mortgage.

Should You Apply for In-store Credit Cards to Get Discounts at the Time of Purchase?

Something I want to point out is that third-party finance cards (such as department store credit cards and finance companies) are considered particularly low-quality credit, and the holder of such cards can appear desperate for credit. I'm sure you have seen this scenario because it happens all the time. For example, you're in a store like Nordstrom, Dillard's, or Dick's Sporting Goods, and they encourage you to apply for a credit card on the spot in exchange for a 10% discount on your purchase. Think that through before you do it because that's considered department store credit.

It's not a high-quality trade line because it is easy to get, and few applicants ever get denied. Depending on the risk bucket you currently sit in, a new finance-company credit line could help or hinder your score. If you already have a lower score, it may not matter much because you have nowhere to go but up. On the other hand, if you already have a high score, it may lower your score because the fact that you are turning to a lower-grade or lower-quality card is likely to be interpreted by the system that you are unable to secure credit from the higher-quality sources you have in the past, and may be an indication that something has changed and caution is warranted.

Think about it: why would someone accept less-favorable terms than they are accustomed to getting from the bank they have always worked with? It could be that something happened, and the A-grade credit options are no longer available to them, so they must settle for B- grade or C-grade options.

Are Some Credit Cards Better Than Others? Something to point out is that not all national credit card options are equal. Some are considered lower-quality options because they are super easy to qualify for, and few people ever get turned down. That's okay if you are in the rebuilding stage of your credit and you just want someone to give you a chance.

These lower-quality options can help you prove yourself and start to move your score in the right direction. If you already have a higher score, however, then you want to avoid these options because a higher-quality card (that is more difficult to qualify for) will carry more weight in the scoring system. There was a time when the lower-quality credit card options played a dirty trick to keep their cardholders' scores on the lower end so they would be less likely to leave them for the higher-quality cards. What they did was choose not to report the credit limit in their monthly reporting to the bureaus.

Now, remember that a person's score is affected by the utilization ratio (the balance divided by the limit) and the higher the ratio, the lower the score. When a credit limit is not reported by a creditor, the bureaus automatically assume that the limit is the balance, which then reflects a 100% utilization rate and results in a lower credit score. By omitting the limit, a creditor could cause a borrower's score to be and stay lower than it really should be and, in the process, keep them from qualifying for higher-quality credit, which would ultimately lead to a loss of business for the existing lower-quality creditor. Some things you can do to improve this area are: Focus on high-quality cards (e.g., bank, credit union, national credit card options). Balance the mix of credit (e.g., mortgage, installment, and revolving).

The fifth major factor that contributes to your score is new credit and inquiries. The new-credit-and-inquiries factor makes up 10% of your score. This factor considers the following: The number of recently opened accounts. The number of credit inquiries within the past 12 months. The time since each account was open. How often you apply for credit.

What is the Difference Between a Hard and a Soft Credit Pull? There are two different types of inquiries-hard and soft. A hard inquiry is when someone pulls your credit with the intent to consider extending credit. In the case of a hard inquiry, you have specifically applied for credit and have asked someone to consider extending credit to you.

Hard inquiries may give a hit to your score between 0 and 50 points depending on which bucket you're in and how many other inquiries you have had in the past year. On the other hand, a soft inquiry is when an employer or your insurance company does a quarterly or annual check. When you pull your own credit, it is considered a soft inquiry. Soft inquiries do not affect your score.

In fact, when I pull a credit report with a mortgage application, these soft inquiries won't even show up on the official list of inquiries from the past 12 months. If you have some type of credit monitoring service that you use to help you track your credit, those soft inquiries will appear on the list, but they're not going to show up when we pull credit.

Is there a 14-day Window on Auto Inquiries?

Something else to understand is that all auto inquiries within a 14-day period are considered as one hard hit. So, if you're out shopping for a car and you end up going to a few different dealerships and they pull your credit, it only counts as one hard hit in the system, as long as it is all done within a 14-day period. Even though this rule exists for autos, I suggest that you not allow multiple dealerships to pull your credit because that's unnecessary. Instead, you could just have your credit checked once, maybe by your bank or credit union, and when you step into the dealership, say, "Hey, look, this is my score, I already know because I had it checked-so just tell me what options I have based on this score." I wouldn't mess around with having five different dealerships check your credit, but if you do want to do that, I would recommend that you play it safe and plan on 13 days instead of 14, just to give yourself a buffer day.

Do Mortgage Inquiries Also Have a 14-day Window?

There is a widely held misunderstanding that mortgage inquiries act the same as auto inquiries. The truth is that only one of the bureaus, Equifax (and VantageScore, which is rarely used in the mortgage industry), considers all mortgage inquiries within a 14-day period as one inquiry while the other two, Experian and TransUnion, do not; instead, they count each inquiry as its own separate credit hit.

Are Pre-approved Credit Cards a Good Opportunity to Build or Add to Credit?

I encourage you to avoid and not apply for pre-approved credit cards unless you have no credit and are trying to build credit. Remember that these cards have a super low bar to get over, which makes them the worst inquiry possible. The system knows that most of these offers are low-quality credit, and almost anybody can get them. They are not going to help your score unless you have no credit or are trying to rebuild credit.

Additionally, those pre-approved credit card offers you receive in the mail could be used by someone wanting to steal your identity and obtain credit in your name, so I recommend shredding those offers rather than just tossing them in the trash. Just so you are aware, after 10 hard inquiries within a 6-to- 12-month period of time, the system stops penalizing you for each inquiry and just maximizes the penalty and applies the maximum hit to your score. Some things you can do to improve this area are: Avoid applying for new credit that is unnecessary. Watch the 14-day window on auto inquiries; plan on 13 days to give yourself a buffer day.

A credit event is something happening that gets reported as a negative on your credit history and has a negative effect on your score. People ask me all the time, "How long do things stay on my credit?" Here's a quick list.

• Tax liens Once paid, 7 years from the date filed. If they are never paid they remain indefinitely.
• Bankruptcies 10 years from the date filed.
• Foreclosures 7 years from the date filed.
• Judgments 7 years from the date filed.
• Charge-offs 7 years from the date of last activity.
• Collections 7 years from the date the debt was incurred.
• Late payments and everything else 7 years from the date of the last negative activity.

These types of negative credit events stick around for a long time, and many of these things have a very negative effect on your score. Even though a serious credit event hurts your score, it does not make you ineligible to purchase a home. Certain events like bankruptcies, foreclosures, and short sales have waiting periods before you can purchase, depending on the loan type.

If something has happened in your life that led to a serious credit event, however, don't lose hope-you can still own a home. Time heals a low score, and consistent positive credit habits also play a huge part in recovering from a low score. In addition to major credit events like bankruptcies or foreclosures that have dramatic effects on your score, even less egregious items like judgments, charge-offs, and collections can have dramatic short-term effects on your score and bring it down very quickly. I have seen people lose 60 to 80 points instantly over a collection account.

If something like that appears on your credit report that is a mistake or a misunderstanding, you will want to jump on it quickly and fix it as soon as you can because it can swing your score in the wrong direction very quickly.

Should You Pay Off Your Collection Accounts Before Purchasing a Home or Making Other Large Purchases? A collection account is an interesting thing. A lot of people come to me and say, "Okay, I've been trying to fix my credit (before coming to see you), so I can buy a house, and I paid off my collection accounts." That could cause a real problem, so let me explain how the system works. With a collection account, the system looks at the "date of last activity" and assumes that was the date when the collection account was posted or placed in the system.

It doesn't differentiate between when it originally started and the date of the last activity. So, if you happen to have had a collection account for three years (that you didn't even know about) and just find out about it and are tempted to pay it off completely, wait. You want to think about the short-term ripple effect of having the system think your recently paid-off collection is a new collection account. If your plan is to purchase a home sometime in the next 6 to 12 months-do not pay it off yet!

The moment that paid collection is reported to the bureaus, your score is going to drop. Instead, we can negotiate the payoff of the collection account with an underwriter so that you pay the collection off at the same time your loan closes. This means you have settled the debt, and you have been responsible for your obligations, which makes the underwriter happy. At the same time, we have protected your credit score because it won't take the hit until after your loan has closed.

The exception to this rule deals with medical collections. As of July 1, 2022, medical collections that are paid are supposed to be removed from your credit report within two reporting cycles (60 days maximum). Additionally, as of July 1, 2023, any medical collection less than $500 can no longer be reported to the bureaus on your credit profile. This is like a built-in "pay for deletion" because once a medical collection is paid off it will be removed from your credit report.

If used properly, this exception can help you increase your score dramatically in a very short period of time. As you can see, collections can be tricky so please do not rush to pay off your collection accounts before you visit with us; we will consider all variables and help create your personalized plan to buy a home. If you do pay off a collection account, you might unknowingly add an extra 6 to 12 months of waiting for your score to heal before you can get a home loan.

How and Where Do You Check Your Credit? Checking your credit report periodically is easy to do. This can be done through www.annualcreditreport.com or by calling 1-877-322-8228. This is a government-sponsored site and really the only place you can go to get a report from all three bureaus for free. Many other sites will try to lure you in with the word "free" or something similar, but their ultimate goal is to get you to subscribe to their service by giving you a small piece of something for free, hoping you will order and pay for additional services.

This is not to say that those services are not valuable in one way or another, but if you choose to use one of those commercial companies, be aware that their underlying motive is profit. Also, be aware that a simple credit report does not provide credit scores, and even www.annualcreditreport.com does not provide free credit scores without a charge. With the truly free credit report, you only get one free report per year from each bureau. One strategy for keeping an overall view on your credit report may be to rotate and simply pull a different bureau's free report every four months.

In this way, you could get a quick look at a report every four months just to see if anything is different from what you are expecting. The potential flaw with this approach is that a particular creditor may only report to one bureau and not the other two, and under this approach, you may not catch something until it has been on your report for close to 12 months.

How Do You Make Sure You Never Have Another Late Payment?

Use auto-pay options for all your debts. I strongly suggest online payments with a pre-set automatic payment that makes the payment, so you never forget to make the payment when life gets busy or you are out of town. For installment debts (e.g., cars, student loans, etc.), make sure they are paid by the due date. For revolving accounts (e.g., credit cards), you will want to pay these early because this will increase your score.

On revolving accounts, set the auto-pay system to pay off the entire balance at least two weeks before the minimum payment is due. If you are not yet at the point where you are paying off the entire balance each month, have the auto-pay option set to make your minimum payment so that you will never have a late payment. If possible, set the payment amount to be at least the minimum payment amount plus $10 because that will also improve your score, as previously mentioned.

How Do You Make an Immediate Change to a Credit Score? Few people know that the bureaus allow updates to a credit report (with proper documentation) to allow you to fix errors on your report or reflect the most current information available. In many cases, these changes can immediately improve your credit score. Updating a credit report and requesting updated scores is referred to in the industry by a variety of names, such as "Rapid Rescore" or "Score Plus." This is not something you can do on your own.

An update and rescore of a credit report can only be done by your lender. In many ways, this is like performing surgery on your credit report and should only be done by someone experienced in making these updates. Even with the guidance of an expert, not all rescore attempts result in a positive outcome. Remember, your credit score is based on a snapshot in time, and any other changes between the last credit pull and the updated credit pull will be factored into your updated score.

Many people are in a situation where just a few tweaks to their credit report would increase their score enough to make a substantial difference in the rate they pay on a home mortgage. Once we have identified what those possible tweaks are (by looking at and analyzing a person's credit report or by running the report through one of the credit-wizard programs we have access to), the changes can be made, and an updated score can be obtained. As mentioned before, this process does not always yield the desired outcome (i.e., a higher score), but experience shows that most scores improve. In most cases, the score improves to the point where the savings for our clients is substantial-in many cases, thousands of dollars.

Please note that a rescore only updates the specific report your lender has on you and does not make permanent changes or updates at the bureau level. Those types of permanent changes can only be made by an individual creditor updating the bureaus directly through the process they have set up for permanent updates. Also, note that the bureaus charge a fee for a rescore, and it is based on a per-tradeline and per-bureau basis. A typical charge could be around $50 per tradeline, per bureau.

So, if you wanted to update one tradeline with all three bureaus, it would cost around $150. Updating three tradelines with all three bureaus would cost around $450. We approach rescoring wisely and only use this tool when it makes sense, but in most cases, the benefit substantially outweighs the cost. This is another stealth tool we have in our bag of resources.