How To Boost Your Credit Score (General Tips That Work)

Credit seems to be a mystery to many these days.  I hear so many misconceptions and fallacies when coaching borrowers on how to build their credit scores.  

Let's dive in and tackle some of these.

Did you know that there are literally dozens of scoring models/algorithms in existence today?  Did you know your score can change depending on the scoring model being used, and the type of debt in which you are applying for?  MyFico.com published a great article to explain this in further detail, as well as which types of credit models are being used by various lending institutions today.  Below is a screenshot from that article:

What is The Difference Between VantageScore Scores and FICO Scores?

Now that we've established that there are different types of credit scoring models, we can start to hone in on the scores that mortgage lenders use, which are the FICO 2 (Experian), Classic 04/FICO 4 (TransUnion) and Beacon 5.0/FICO 5 (Equifax) scores.  If you're not a mortgage lender you won't have access to these scoring models, so the old adage "know your score before speaking with a lender" is rubbish.  The scores showing on your credit card statement or bank statement are likely the Vantage 8.0 or FICO 8 scoring models.  These are consumer-facing scoring models, and often tend to be slightly higher than a mortgage lenders credit score.  The scores should be within the same range, but they won't be identical.

So what goes into making up your credit score?  Hopefully you've seen this chart, or something similar, before:

Everyone knows that making on time payments is important, but did you know that on-time payments account for about 35% of your total score composition?  On-time payments are important on all accounts, but they are dramatically more important (more heavily weighted) towards revolving debts.

Speaking of revolving debts, 30% of your total score makeup is related to revolving debts like credit cards, HELOC's, etc.  Any type of loan that let's you charge on the balance, pay it down, charge it up again, is considered to be a revolving debt.  In short, your balance to limit ratio on your revolving debts is about as important as on-time payments.  The rest of your credit score composition has to do with the average length of credit history, new credit, and the mix of credit (e.g. revolving, installment, mortgage, etc.).  About 65% - 75% of your total score makeup is related to revolving credit accounts, so manage them responsibly!

In the video below, I share some secrets about the ideal balance to limit ratios you should keep your revolving credit card balances at, as well as WHEN to make payments on your credit cards to boost your score for free!

Lastly, let's discuss some recent changes to credit scores as they relate to medical collections.  

According to a report published by the CFPB (Consumer Financial Protection Bureau), there is an estimated $88 billion in medical debt affecting millions of Americans.  Before July 1, 2022, a paid medical collection could remain on your credit report for up to 7 years, and would certainly be dragging your score down for at least 24 months after the collection was paid.  As of July 1, 2022, paid medical collections are required to be removed from your credit scoring algorithm.  How cool!

Also effective with this change, is the time requirement in which medical collections can appear on your credit report.  The old time requirement was that unpaid medical collections could show up on your credit report after 6 months.  As of July 1, 2022, unpaid medical collections can no longer report to the credit bureaus until 1 year has elapsed.  Another big win!

The last change, which is effective as of January 2023, has to do with the amount of medical collection debt owed.  Medical collections under $500 will no longer be included on your Equifax, Experian, or TransUnion credit reports.  This means that you will no longer experience significant score decreases for a $15 unpaid medical collection popping up.

If your credit scores disqualified you from a home loan in early 2022 or before, you may want to consult with your mortgage lender, because you may have seen a serious boost to your score since.