Jim’s Mortgage Corner | Immovable


About 80% of your FICO score is based on something to do with credit cards, so I want to share and clarify some of the common myths.

My favorite question: will opening a new credit card decrease or increase my FICO score? The answer is yes, no or maybe. The easiest way to determine this is the number of existing credit cards you have opened. The perfect credit mix would include two installment loans (mortgage, car loan, student loan, or something with a fixed payment) and three open credit cards with balances below 30% of high credit. If you only have one credit card open, I often suggest opening one or even two additional credit cards and more often than not your score will go up. If you already have three credit cards open and you open another card, your score may initially drop until you have established three to six months of payment history on that new card.

What makes up 80% of my FICO score?

– 35% of your score is based on a good payment history, the length of positive credit history and the severity and quantity of payment defaults on your accounts.

– 30% of your score is based on the amount owed on revolving accounts, so it’s important to keep your revolving balance at 30% or less than your credit limit. For example, if your credit limit is $ 1,000, you must keep your credit card balance below $ 300.

– 15% of your score is based on the length of your payment history, so it helps to have a long payment history showing that you use these accounts often.

– Do not close your credit cards and use them at least once every one to three months so that the creditor does not close them.

– Do not exceed your credit card limit on your balance or you could potentially reduce your score by 30 to 40 points. I suggest you spread your purchases over several credit cards. This minimizes the risk that a credit card company will shut down one of your cards due to lack of activity which can lower your credit score.

– Avoid late payments on your credit card. A single late payment on a credit card could potentially reduce your score by 100 points!

Today’s scoring models don’t take into account that you pay off your credit cards every month. They look at the relationship between your balances and your credit limit. However, if you’d rather charge all of your purchases to a credit card to earn points, it’s okay to have a higher balance, but make sure your balance is lower before requesting new funding. Each credit card reports to the credit bureaus at different times of the month. Some report at the end, some report at the beginning, and some even report twice a month. You can contact your credit card company to get the date it relates to the credit bureaus.

Keeping your credit cards open and keeping your credit card balances low will have the most positive impact on your FICO score.

Branch Manager, NMLS # 1721861

Cherry Creek Mortgage, LLC, NMLS 3001

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