Understanding Credit Scores and Repair

If you are applying for a mortgage, you're going to have to deal with credit scores. Here's a primer on credit scores and methods for improving them.

Credit Report

Step one in the process is making sure that you have a current copy of your credit report. Congress recently amended the Fair Credit Reporting Act so that consumers may now receive one free credit report annually. There are three major credit bureaus: Equifax, Experian, and Transunion. Since entries can vary across bureaus, you'll want to request a free report from each of the three companies. (Go to www.annualcreditreport.com)

Credit Score

It's also imperative to know just what a good credit score is. Most A-Paper scores typically begin around 680, although this number may differ slightly among lenders. Don't despair if you come up shy, there is always room for improvement. Increasing your score just 5 points can save a significant amount of money. For example, if your score is 698 and you increase it to 703, then you could save yourself thousands of dollars over time as a result of a slight improvement to your loan's interest rate.

While credit repair is necessary for some, it is not the panacea to increase your credit score. Even if you have stellar credit, you can enhance your score through these steps:

1. Evenly distribute your credit card debt to change the ratio of debt to available credit. Let's say you have a credit score of 665. If you have debt on only one card, and four additional credit cards with zero balances, evenly distributing the debt of the first card could move you closer, and possibly into, that ideal bracket. 1% usage on credit cards will give you the maximum score. We encourage our members to stay at 10% or less.

2. Keep your existing accounts open and active. The average consumer is usually anxious to close credit card accounts that have zero balances, but doing this can cause them to lose the benefits of a long-term credit history and increase their ratio of debt-to-available credit. The bottom line is don't close those old accounts!

3. Keep credit inquiries to a minimum. Each inquiry into your credit history can influence your score anywhere from 2-50 points. When it comes to mortgage and auto loans, even though you're only looking for one loan, multiple lenders may request your credit report. Before going to a car lot and applying for a loan, which can add as much as 7 inquires onto your report, go to a credit union or a bank that you have a relationship with. This will net you 1 inquiry and you can go car shopping pre-approved.

Remember, credit scores do not instantly get better. Improving them requires time and diligent effort on your part, so it's a good idea to start at least three to twelve months prior to submitting your application for home financing.

If credit repair is what you need, you can either begin the process yourself or seek out a repair service. If you decide to make your own improvements, visit as many websites as possible to get information regarding credit laws and consumer rights. Diligently search through them and educate yourself to ensure that you don't sustain any self-inflicted wounds. A good place to start would be the Federal Trade Commission's website, which contains a plethora of helpful literature. You'll also find additional tips here on our blog.

If you're facing severe/complicated credit issues, or simply don't have the time to do it yourself, then you'll probably want to enlist the assistance of a professional credit repair company.


Albeit, addressing credit issues can be uncomfortable. By taking these steps now, you'll be that much closer to obtaining the home of your dreams.