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Help Clients Maximize Their Credit Scores

July 8, 2014
From Loan Officer Daphne Tapp

From Loan Officer Daphne Tapp

Do your clients know their credit score? Do you know yours? Most people don’t, but assume that they have a good score. But what goes into calculating a credit score? You might be surprised at the items that boost it, and those that actually can dent a credit score. By knowing some of the basics, you can educate your clients or learn if there might be an issue with their score even before credit is pulled.

The most important component to a credit score is payment history.  It’s vitally important that a consumer pays their bills on time, every time to maintain a good score. What might be surprising to consumers is that paying off debt early doesn’t boost the credit score like you think it might. In fact, it doesn’t really factor into their credit score at all, a fact that seems counterintuitive.

The second most important criteria for credit scores is the utilization of credit. In other words, how much of their credit do your clients use each month? If a consumer has two credit cards with $10,000 total in credit available, how much of that do they charge against?

A study done by FICO, the well-known company that provides software for credit score calculation, learned that consumers with the very best credit scores (785 or greater) used just 7% of their available revolving credit.  Even if borrowers pay off the entire amount each month, the credit score looks at how much of the total credit was used. Unfortunately, the utilization amount isn’t positively affected by paying it down to zero each month. To counter a high utilization percentage that can bring down their credit scores, consumers can do one of two things: charge less on credit cards or ask for an increase in their credit limit. They could also open additional cards to maximize the amount available to them, but a new credit card will negatively affect the credit score initially.

There are many factors that go into the calculation of a credit score, and your Loan Officer can help you and your client walk through these scenarios and help to strategize ways to maximize those numbers.

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