How to Increase a Credit Score

Credit scores and lending risks for a bank Credit scores are one of the most significant factors lenders use to evaluate whether or not to lend money to a borrower.

When buying a home, few things are more vital than your credit score.

Credit scores are designed to measure the risk of defaulting by considering various factors in a person’s financial history.

If you are considering purchasing a Massachusetts home, one of the things you want to be sure of is the accuracy of your credit report.

One of the most popular mortgage questions among home buyers is what credit score is needed to buy a house.

You need good credit scores to get the best mortgage deal.

The Mortgage Industry Changed After The Last Real Estate Downturn

If you ask any mortgage broker, they will tell you that things have changed in the mortgage industry monthly. Due to the increase in foreclosures and short sales back years ago, lenders have increased their standards when evaluating the potential for default of every borrower.

One of the tools that lenders use to evaluate the borrower to repay a loan is what’s known as their FICO score. The Fair Issac Corporation developed the FICO score.

The company was founded in 1956, and its scoring programs are often used to assist lenders in managing credit accounts, detecting credit fraud, and automating lending decisions.

The FICO score is a standardized approach that helps lenders efficiently deliver loan decisions.

FICO scores range from 300 to 850, with 850 being the maximum possible score. According to the FICO scoring system, five factors determine a borrower’s score.

Using these guidelines can help you improve your credit score! Doing so will put you in a much better financial position to purchase a home.

Your Payment History

  • 35% — A borrower’s payment history carries the most weight – Late payments on bills, including a mortgage, credit card, or automobile loan, can cause a consumer’s FICO score to decline. Paying your bills according to the contract you signed will, over time, help improve a consumer’s FICO score.

Credit Utilization

  • 30% — The borrower’s credit utilization – The ratio of current outstanding debts, such as credit card balances, to the total available revolving credit ( your credit limit). You can improve your FICO score by paying off debts and lowering your utilization ratio. Closing existing revolving accounts will typically adversely affect this ratio and harm your FICO score.

Your Credit History Length

  • 15% — The length of credit history – As your credit history gets longer, assuming you pay your bills on time, it can positively impact your FICO score.

Types of Credit

  • 10% — The types of credit used (installment, revolving, or consumer finance) – There is some credit given to having a history of managing different types of credit.

Credit Searches

  • 10% — A recent search for credit or amount of credit obtained recently– If you have multiple credit inquiries as a consumer seeking to open new credit, such as credit cards, retail store accounts, or personal loans, it can hurt your score. Applying for lots of new credit in a short period is also viewed as risky and can cause a drop in an individual’s score. What should be noted, however, is that if you are shopping for a mortgage or auto loan over a short period, you should not experience a decrease in your scores due to these types of inquiries. So if you are buying a home and apply to multiple lenders and they all do their credit checks, you are not supposed to be penalized.

What FICO Scores Do Not Consider

FICO scores do not consider a borrower’s salary, employment history, where they work, rental agreements, child support, or other such obligations or interest rates on any current loans.

Generally speaking, a credit score over 720 is often considered excellent. A score of 680 – 719 is considered good.

A score that falls between the range of 620-679 will usually make the lender scrutinize the file further.

A score of 585-619 will typically disqualify you from getting the best rates. A score below 584 will make many lenders question whether or not they want to do business with you.

Three companies report credit scores to lenders. They are Equifax, Experion, and Transunion.

The scoring of these agencies can often vary quite a bit. Each of the bureaus collects different information on the borrowers, which can change the final score.

Given how the credit scores can differ from the various agencies, it may be prudent to apply to more than one lender if you fall on the edge of one of the credit ranges.

For example, if you scored 675 at one agency, it is quite possible you could be 700 somewhere else, which could give you a better rate!

Credit Scoring Models Changed

It should be noted that the credit scoring model was slightly altered in 2009 and could affect your score either up or down by 20 points.

The new model will rank credit problems and issues according to number and magnitude more precisely than before. The new FICO scoring system also focuses less on how many accounts a borrower has and more on the amount of balances carried.

The statistical models used for generating credit scores are subject to federal regulation. The Federal Reserve Board’s Regulation B (implementing the Equal Credit Opportunity Act) expressly prohibits a credit-scoring model considering “prohibited biases” such as race, national origin, sex, religion, and marital status.

The law also states that credit-scoring models must be empirical and statistically sound.

In addition, if a borrower is denied a loan based on credit, the lender must state the specific reasons for the denial. A statement that the person did not score high enough is not acceptable.

The reasons for denial must be specific. For example, there were too many late payments of 60 days or longer.

Tips For Improving Your Credit Score

So how does one improve their credit score to get the best rates that lenders offer? The answers are actually pretty simple! Increasing your FICO score

  • Pay all of your bills on time every month.
  • Pay off all of your existing debt.
  • Unused credit cards should not be closed. This can sometimes lower your credit score.
  • Do not open a bunch of new credit card accounts in a short time.
  • Fix any credit reporting errors.

A few years ago, it was not uncommon to hear mortgage brokers or credit repair companies do what was known as “doctoring” a person’s credit.

A major portion of the FICO credit score is set by the ratio of credit used to the credit limit.

What was happening was they would increase the score by simply increasing your credit limit. For a fee, some credit-repair agencies would report to the credit bureaus that they have opened an account with a high credit limit.

The customer could not use this account, but it would improve the customer’s FICO credit score due to lowering the balance-to-credit-limit ratio. This is no longer allowed!

Final Thoughts

When you are starting your home search and getting your pre-approval from a lender, one of the other things you should do is get a copy of your credit report from each of the three report bureaus.

As a consumer, you can get one free credit report each year from Equifax, Experion, and TransUnion.

With this knowledge, you should be well-armed to position yourself for the best mortgage rate possible and increase your credit score!

Once your loan is in process, you’ll need to remember to get your mortgage rate locked at the most appropriate time.


About the Author: The above Real Estate information on improving your creditworthiness was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at or by phone at 508-625-0191. Bill has helped people move in and out of many Metrowest towns for the last 36+ Years.

Are you thinking of selling your home? I am passionate about real estate and love sharing my marketing expertise!

I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.