Over the past few years, I’ve spent a considerable amount of time researching credit scores and factors that have the largest impact on them.

Thanks to websites like myfico.com and creditkarma.com, as well as multiple blogs on the subject, there is a lot of information out there.

First, it is important to understand how your score is calculated:

Payment History: 35%

Amounts Owed: 30%

Length of Credit History: 15%

New Credit: 10%

Types of Credit Used: 10%

As you can see from the chart I found on myfico.com, the amount you owe and your payment history impact your score by 65%. Of the amount you owe, revolving credit (such as credit cards) can have a huge impact on your score. For example, if you carry high balances on your credit cards and the amount you owe is close to the credit available to you, it can have a negative impact.

You can improve your score very quickly by paying down the amount of credit card balances that you owe. While you might think that paying them completely off would have the biggest impact and make your score the highest, that may not always be the case.

There are multiple opinions out there that your credit score may actually be the highest if your balance to available credit ratio is in the 8-10% range. This may indicate that you are not living above your means and that you use your credit responsibly. Your credit score could vastly improve if you paid your balances down below 50% of your available credit, and even more so if you paid your credit card balances down below 33% of your available credit. Several of the “experts” agree that the 8-10% balance to available credit ratio might be the sweet spot in regards to revolving credit for a maximum credit rating.

Why is this important? The better your credit, the better interest rate you will qualify for on a mortgage. For example, you could take a look at your credit now to see if there are ways you could improve your score to above 740 or 780, which might save you .125 or better on a mortgage interest rate, which would save you thousands of dollars in interest over time.

Many of these websites have what they call score simulators, where you can actually see what your score would be if you took certain actions such as paying down credit card balances as we discussed above. Check it out! -mr


Please feel free to send your questions. Rest assured I will only use your first name. Email them to: questions@mikerandallhomes.com

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Questions for Mike Randall

Coldwell Banker Pinnacle Properties

2093 Florence Blvd, Florence, AL 35630

Mike Randall, REALTOR® Associate Broker | ABR, CRS 256.366.9779 | www.mikerandallhomes.com Coldwell Banker Pinnacle Properties 256.766.0069 Office 256.766.0926 Fax