How High is High Enough for Your Credit Score?
Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager
Pamela Yip is the MONEY TALK writer for the Dallas Morning News. Her 09 February 2015 story introduced a man with a high (above 760) credit score who was driven to overtop the 800 plateau. Yip wisely pointed out that since he had already attained the 760 “gold standard” rating, it was not worth hiring a consultant to drive him over 800.
I could not agree more. We have often discussed credit rating as it applies to the purchase of automobiles. My online course, “How to Buy a New or Used Car” stresses the importance of good credit. The higher your credit score, the lower your interest rate and the more favorable the terms are.
So how do you increase your score?
The story point outs the most obvious path, that of paying your bills on time, better yet, early. Here are some others that may or may not be common sense.
Credit Cards
- Pay off the balance in full every month
The interest rates charged are the highest allowed by law and the card companies move their offices that allow the highest rates. If you cannot pay the balance off every month, you have a spending discipline problem, not an income problem. Borrowing money on your credit card is a bad idea and an expensive practice.
- Do not obtain multiple card accounts
You are not increasing your credit availability so much as depressing your credit score. The ratings companies look at the total credit available to you and will penalize your score if you have too much debt available that can be serviced by your income.
Further, each card introduces the chance for late payment and default. If you only have one (two max) card, you are far more likely to pay the balance off every month on time. Besides, doing so will convince the credit card company to grant our request for credit line increases.
Home mortgages
- Do not buy more house than you can afford.
Bankrate.com states, “As a general guideline, your monthly mortgage payment, including principal, interest, real estate taxes and homeowners insurance, should not exceed 28 percent of your gross monthly income.
- Pay half of your monthly mortgage every two weeks
This will amount to making 13 months’ worth of payments per year. For instance, assume your monthly payment is $1,000 and is due on the last day of the month. Pay $500 on the 15th day and another $500 on the last day of the month. Since there are 26 two-week periods, you are effectively paying.
- Apply the excess to principal
Talk to the mortgagee about your plan to pay every two weeks and specify that you want the excess to be applied to principal, not prepaying the mortgage. According to interest rate.com, “A $200,000 30-year home loan with an interest rate of 5% would cost $186,512 in interest with the traditional 12 payments a year. Make the equivalent of 13 monthly payments every year, and the loan will be retired in 26 years and you pay only $153,813 in interest — a savings of $32,699.”
Auto loans Bankrate.com claims that , “Not more than 20 percent of monthly income, say experts. And that should include payments on all the cars you own, whether you have one vehicle or six. And we’re talking about your take-home pay, not your gross income.”
Following this advice will drive your credit score very high.