What is good credit?

The benefits of good credit are numerous. For example, you score low interest rates on credit cards, and get extremely competitive rates on long-term mortgage financing. So how do the credit pros define “good credit” and how can we make sure we keep it once we have it? Scores from the three major credit bureaus— Experian, Transunion, and Equifax— are the determining numbers that affect your ability to secure a homemortgage, and at what cost.

The credit bureaus will score your credit near or above a FICO of 800 if there are no faults on your credit, such as late payments, collections, or maxed-out credit cards. Here are a few ways of keeping your scores high:

• Keep your credit card balanceswell below the 50 percent available on the cards.

• Pay mortgages and all other monthly debt (like car payments) days before the due dates.

• Be assertive about payingmedical bills. Many borrowers find delinquent medical bills and say they never received the bill.

• Have your credit run at least once per year by all three bureaus.

Remember when getting mortgage financing that Fannie Mae and Freddie Mac have extra charges for FICO scores that are low, for example, on an 80 percent loan for a primary residence, a charge of 1.25 percent times the loan amount as an extra onetime fee with a FICO score of 680 as compared to a 740 Fico score. For a $400,000 loan, that amounts to increased closing costs of $5,000.

A low score costs you money when securing a home mortgage.

If you are considering purchasing a home in a few months, start with the credit report first and look for ways of raising the FICO scores. I recommend using a credit-repair company. It will charge a fee, but will give you a greater chance of improvement.

Use a knowledgeable mortgage company. It is much harder towork on your credit without professional guidance.

The three national credit bureaus have a monopoly on credit reporting for banks, credit card companies, medical entities, stores, and any others desiring credit. They set the rules and calculate the scores. All banks and mortgage companies use these bureaus as the last word in credit-worthiness.

Many factors go into the making of a credit score and like everything in life, the more you know the more control you gain over the situation. Credit reports can contain old, outdated facts and figures that can be scrubbed and cleaned. So be smart and check your credit and use advisors to keep your credit clean of problems. It will pay dividends.

Jim Gay was a real-estate broker for 20 years and has been a financial consultant to Fortune 500 companies. He is currently a broker/owner of the Mortgage Place, Inc. (505-986-9080) and can be reached at jim@jimgayhomemortgage.com.