Most people know that their credit score is one of the main factors in getting approved for a home loan.  What they may not know is all the factors that actually make up a credit score.   There are three main credit reporting agencies and often different information is sent to each agency.  Each agency has its own system for calculating a credit score and scores may vary depending on the purpose of the loan.  That’s right, a score for applying for a credit card or car loan is different that a home loan.  Don’t be fooled by online credit reporting companies to give you a valid credit score.  These scores are almost always higher, sometimes as much as 50 points!  Instead focus on the credit report.  This report will show you all your credit information and often tips on how to improve it.  Here are the key factors:

  • Pay bills on time – I know this is obvious but it is the top factor. Your credit report will show which bills are being sent to the reporting agency
  • Don’t close credit cards – This will automatically lower your score in the short term.  If the card is costing you money, at least wait until after you have your loan before closing the card.
  • Use all your credit cards a little – if you have a card tucked away that you don’t really use it won’t help your score.  Use it once or twice a year to make a small purchase.
  • Don’t charge more than 30% of your available credit on each card – This has an impact on your score even if you pay it off every month.