Like Rome, great credit wasn’t built in a day

Posted by Kathy Zucker in General | 0 comments

When my husband and I first started looking into buying a home, we found out that we have really great credit. I think the direct quote from the Wells Fargo mortgage banker was, “Wow, all three scores are above 800 for both borrowers! I only see that once a year!”

I knew we had good credit but assumed it was in the high 700s, not above 800. When I learned of our (pleasantly unexpected) credit boost, I picked the banker’s brain to find out what happened. It’s not like I was actively working to improve our credit, so what was I doing right? And the timing was truly fortuitous because our credit scores opened up all sorts of unexpected doors to us. Lenders rely heavily on credit scores because people with really high ones essentially never default, so we qualified for an obscenely low interest rate as well as a secondary loan, which I did not expect to receive because that type of loan is how this country wound up in a recession.

We all know the basics on good credit, but why had our credit scores suddenly shot up? Was it the fact that we paid off our auto loan? Stopped carrying balances on our credit cards (I finally got tired of playing games with 0% APR cards and just paid off the balance I had been carrying ever since I furnished our 2BR back in 2004)? What?

When I started asking questions, I found out that the answer was none of the above. It was something I had been doing inadvertently. It made sense once the banker explained it to me, but I never would have figured it out on my own. It turns out that the credit reporting agencies don’t know what the limit is on your credit cards. The only way they can tell is when you actually spend up to the limit, which most people don’t do because who spends $20k in one month? So they look at your monthly balance as a percentage of the highest balance you have ever carried, and score you better if the % is low.

Because I had been bouncing around a balance from card to card that carried 0% teaser APRs, I had been inadvertently spending up to the maximum on pretty much every credit card we own. And then when we kept a bunch of those cards after we paid them off to try them out to see if we liked them, that also improved our scores because the agencies want you to have a minimum of four credit cards. So in addition to being a great place to live, our 2BR accidentally provided us with the tools to build really great credit scores (those 0% offers really pile up when you live in the same place for a long time). Good things have a way of bringing company, and I will always be glad we bought our 2BR.