What is the perfect credit profile?
What is the perfect credit profile? I had a question come in on YouTube from Chris. He reach out to me and asked ‘What is a perfect credit profile?”
I’ve covered the video “Seven steps to a perfect credit score” already. The perfect credit profile really depends on where someone is starting from. I thought that the situation that Chris described may be relevant to others so I wanted to do a video on it. Everybody’s credit profile is different, so the advice someone provides might be correct for one person but more than likely it’s going to be wrong for the next person. There are some general rules that everyone should follow, but because the individual’s credit report is truly individual, blanket advice for everybody never works.
Chris has a credit score of about a 600 right now. He’s got a collection that is expected to fall off one way or another soon, that could improve his credit score but it might not. It really depends on the rest of this profile. Think of someone with a credit profile that has many collections, and then one collection comes off, the credit profile probably will not improve. Take that same collection off a credit profile that has only one collection and everything else perfect, that collection coming off might actually improve the credit report profile quite a bit.
Chris has four current student loans totaling around fifteen thousand that has been on his credit report profile since May of last year.
He has one current car loan with thirteen months’ worth of good credit history. That’s an installment loan, it is important to remember when starting out to get an installment loan. He has one credit card with a few 30-day late payments from 2014. It is never good to have a 30 day late on a credit card because once the account has a 30 late day late, it will always be categorized as something called “current was 30” or “current was 60”. Once an account has a late date recorded in its history, it never be as good as a current account. A consumer will never get the positive points that they would have if it was just “current” (never late).
The first thing I’m going to tell then to do is, reach out to that credit card company. Because it’s been a few years since the 30-day late occurred. They could request a goodwill removal of the 30-day late. Sometimes the credit card company will do that, sometimes they won’t. Chris should say something like “I been a good client, paid on time for two years, I was wondering if you could help me out and remove those 30-day late from 2014”.
Sometimes the credit card companies will remove them, if they do great, if they don’t that’s fine too. Chris should just keep current on that card and keep it active because it is his oldest credit card. I would tell Chris to add a few more cards, three to five bank credit cards is optimal for a good credit profile.
The problem is, if you go to a bank and get, in his case two more credit cards, his score is going to dip initially. There is a new inquiry and he will have a new account. Those two things are negative. More than likely his scores are going to dip for at least six months. Then the credit profile will start to improve from there, provided he pays everything on time. As long as Chris has that type of time horizon, where he can make that change and absorb that negative hit, then ride that out for six months.
One of the things he mentioned, is to keep the revolving balances from five to nine percent of the high credit. This is very important if a consumer wants to get the perfect credit profile. Consumers should bring their balances all the way down to five to nine percent. Some people say thirty percent some people say fifty percent and that is actually incorrect. Credit scores improve when consumers pay down just one percent from 50. If consumers are at 50 percent of the utilization (high credit) and they just come down to 49% the credit score gets better. Many times it is just a few dollars to bring the utilization down to that next increment. If you bring that down from 49 of 40 that’s good, but they will get a larger benefit when they go from 40 to 39.
Always try to keep balances as low as possible and with trended credit data now being used by Fannie to make an underwriting decisions, how you maintain your balances is even more important. Consumers that are interested in getting a mortgage need to make sure that they have their trended credit profile as positive as they can. Fannie Mae is not only looking at your credit score, now they’re looking at consumers trended credit profile as well. I have done many videos on trended credit.
Chris thank you for the video request, I do appreciate it and all of the comments that we’ve received. The likes and the subscribers that we have, were just up over 700,000 views and about 6,000 subscribers.
If you want more information about how to improve your credit score including the free six steps to better credit score go to Getloanready.com and it’ll take you to a page on my website where you can download the worksheets and and get a copy of my new book that should be out shortly.
For more videos about credit and credit scoring check these out at www.thecreditguy.tv. If you are a mortgage lender please share this on your Facebook or LinkedIn page. If you have any questions, leave them down below I’d be happy to answer them.