What’s Killing Your Credit Score?
My wife is a realtor and I’ve heard her say something like this more than once in the past year: “The banks are sure holding onto their money tighter. My clients are having a tougher time qualifying for a home loan.” A lot of this has to do with your credit rating. And a mediocre credit score just doesn’t cut it anymore. Today, you need a killer score to get the best interest rates on mortgages, credit cards and auto loans.
It wasn’t that long ago, “a creditworthy borrower was someone with a 680 to 700 score. Now, to get the best rates, that score needs to be 760 and up,” says Greg McBride, senior financial analyst at Bankrate.com. So you could say when it comes to your FICO score, 760 is the new 680. FICO is your three-digit credit score that generally ranges from 300 to 850. The higher the number, the better credit risk lenders believe you are.
- Not paying your bills on time. Your payment history accounts for about 35% of your total score. A single late payment could drop your score between 80 and 110 points depending on whether you already had an average credit score or a great score. You can redeem yourself if you keep making payments on time. The older the negative information is, the less important it is to your credit score.
- Closing old accounts. If you shut down a credit card account, the total amount of your available credit is lowered and your balances look much larger in comparison.
- Opening a new account. Your score drops a few points, because you look riskier to the credit bureaus.
- Maxing out a credit card. It could ding your score as much as 30 to 45 points, depending on your previous score.
- Defaulting on a loan. A foreclosure can see your score plummet by as much as 160 points, and a bankruptcy 240 points.
While most negative information stays on your report for 7 years (bankruptcies can stay on for 10 years), it’s never too late to start rebuilding your credit. If you consistently pay your credit card bills on time, you’ll see positive credit information indefinitely.
Make sure to get a copy of your credit report from all three credit bureaus once a year. The website to go to: annualcreditreport.com. And it’s free.