Just a few months ago, a credit score of 620 was good enough to obtain the best mortgage rates and terms available. Many lenders now require a minimum score of 680 to qualify for a prime loan. And some won't even make a loan to anyone whose score is below the new benchmark. "Everyone's gotten extremely conservative," Chung said.
On top of that, in cases in which borrowers don't make at least a 20% down payment, investors who buy loans from local lenders and insurers that protect the loans' owners against borrower default are charging extra fees.
Since a good credit score is vital, borrowers need to make sure that the information contained in the files maintained by the three credit bureaus is accurate and up to date.
Check your histories with all three repositories -- Experian, TransUnion and Equifax -- because each receives information from different creditors. Your local department store may report to one bureau, for example, but not the other two.
If you have few or no credit records on file with the three bureaus, you can still have a credit score if you, among other things, pay for rent, cable television, phone service, insurance and utilities.
These regularly recurring bills typically are not included in the data used to compile a credit score. But they can be used to create a "nontraditional" credit history.
Credit Plus, a Salisbury, Md., credit information service, allows consumers to post their payments online with PRBC, a consumer reporting agency that collects, stores, scores and reports nontraditional payment data. There is no charge to post at www.creditplus.com (click on PRBC), but there is a charge when a lender orders verifications.
"Nontraditional credit reports have been gaining greater acceptance in the mortgage sector," said Allen Johnson, Credit Plus vice president of sales and marketing. "So this is a powerful tool for those who have been neglected by the regular credit system."
Credit scoring is based on complex mathematical formulas containing as many as 300 possible characteristics that might be predictive of the likelihood that someone will meet his or her credit obligations. Of these variables, though, about two dozen are considered the most predictive, so it is possible to raise your score by focusing on them.
For example, the longer a credit history, the better. Files that go back 30 years are considered ideal. But a three-year record will do the trick, and Johnson of Credit Plus says a record of 12 or more consecutive on-time monthly payments will help even thin-file borrowers obtain financing.
Managing debt load is also recognized by the scoring formulas. Keeping your credit below half of your limit will improve your score. But keeping it below 30% is ideal.
To raise your score, it is better to pay accounts down to a lower balance rather than paying the account off entirely.
Delinquencies, of course, are negatives. But when a late payment occurred is also important. Recent late payments will reduce your score significantly, but a late payment or two that took place more than two years ago will cause hardly a ripple.
Because much of what goes into a credit score is counterintuitive, the best way to improve your credit score is to work with a lender or broker who employs credit-optimization software that identifies key influences