by Carrie Benuska 

The topic of credit scores is not a particularly “sexy” topic, and yet that three-digit number can either open doors to great opportunity or bar you from achieving your dreams. Similar to the grades that we received in school or our score on the SAT, the credit score rates our financial dependability to potential creditors. How credit scores are determined is a bit of a mystery, and we are warned to check our credit scores regularly to ensure that our identity has not been stolen. We are also warned that checking our scores too often actually reduces our score. No wonder most of us just ignore the topic and hope that everything is okay.

I recently had the opportunity to hear from Steve Kenilvort, Loan Officer with First Capital Mortgage, about this important topic. First Capital has partnered with Certified Credit Reporting to bring additional information to consumers about how credit scores are determined as well as to give helpful tips for maximizing your score. Kenilvort began the talk by stressing the importance that good credit plays in getting a home loan and also minimizing the fees that go along with the loan process. Today more than ever, good credit is vital and can save you thousands of dollars in extra points. So, even though many of us would like to put our heads in the sand about our credit score, it is time to bring this topic into the light.

In our technology driven world, the process of checking your credit scores could not be easier. There are many on-line sites which allow you to check your credit from the comfort of your own home. The clever advertising of “Free Credit Report.com” has brought a comical edge to the importance of checking your credit, a topic which is not particularly clever or comical. Their humorous songs about having your credit ruined are catchy and recognizable to many. Other on-line sources are www.myfico.com

Credit cards are important to the establishment of credit but can also lead to excessive debt and high monthly interest payments. From a positive standpoint, having multiple bank credit cards in your name gives a bump in credit score. Having two or four is good, but according to Kenilvort, three bank cards in your name is the ideal. He stressed that having one card for at least 48 months is helpful, as well. Many of us will get new credit cards in the search for airline miles or other benefits, but it would be a mistake to cancel a long-standing credit card in favor of this new card. Continually opening new credit card accounts is not the wisest move either. There is a nice point increase in your credit score when it has been at least 24 months since opening a bank card.

The most interesting fact that I learned about managing credit cards has to do with keeping track of your balance. Kenilvort claims that we should avoid getting our credit cards run up close to the limit. Your credit score will receive the most benefit if there is a gap between your balance and the limit. He said that when he is trying to help someone fix their credit, he will have them pay their credit card bills down to a very low amount but above zero. This gives his clients the best bang for their buck.

Obviously, it is important to pay your bills on time. If you get to a point that a bill is over 30 days late, it will negatively affect your credit. The obvious bills to pay close attention to are your mortgage, taxes, and credit card bills. The patient portion of medical bills is often small in amount but can lead to credit problems. These bills often drag on for months as your insurance company processes the claim. During the waiting process, it is easy to lose track of the bill. If it is sent to collections, then it will negatively affect your credit.

On the far end of the spectrum, any form of debt settlement, short sale or foreclosure on a home, or bankruptcy will have a profound affect upon your credit score. If you are having trouble paying your mortgage and you owe more on it than it is worth, then a short sale is your best option. Even though a short sale will bring your credit score way down, any future attempts to get a loan will be helped by the fact that you negotiated with the bank, rather than just walking away in foreclosure. Kenilvort said that bankruptcy should be avoided at all costs and should only be considered if you have multiple debt problems that cannot be resolved in any other manner. Bankruptcy will cause the largest possible hit to your credit.