How is my credit score determined?

By Amy Smith, Mortgage Planner

 

Credit scores are driving forces for nearly everything these days.  A low credit score may mean having to put a deposit down when opening utilities or not being able to obtain new credit for an auto loan, credit cards or a new home.  With a low credit score you can also count on higher rates on any new financing.  Here’s a breakdown of how your credit score is derived:

1. Payment History – 35% Impact – Paying debt on time and in full are positive marks on your credit report.  Late payments, collections and judgments all have a negative impact on your credit score.
2. Outstanding Credit Card Balances – 30% Impact – A high outstanding balance compared to the available credit can have a big impact on your score, especially if multiple accounts have balances that exceed 50% of the available credit.
3.   Credit History – 15% Impact – The longer you have credit the better your score. 
4. Type of Credit – 10% Impact – A mix of loans (auto, student, credit)  is always better than having a high concentration of one type of loan, especially credit cards
5. Inquiries – 10% Impact – This is based on how many people have pulled your credit in the last 12 months.  If you pull your own credit there is not an impact to your score.

There are quite a number of credit sites that will monitor your credit scores/report for you.  You can also access a free credit report from each bureau through www.annualcreditreport.com once a year.  For a more information on the points above you can click here. Feel free to also visit us online to try our mortgage calculators, request a copy of our insider's guide to credit scoring and home financing, request a copy of our  homebuyers guide or get started on your mortgage application!

How To Improve Your Credit Score For Better Financing Terms

Imagine that you've found the perfect home and are ready to apply for financing. Your home loan approval amount comes back lower than you would have expected and at an interest rate significantly above what you have heard is available on the market.

This could be because you have an average to poor credit score.

Mortgage lenders base interest rates on many things, but your credit score plays a large part. Anything between 720 and 850 will typically qualify for better interest rates. A mediocre score is usually between 660 and 719, and a low score is 659 and under.

If you have a lower score than you'd like, below are a few traits for you to follow of people who possess higher credit scores and secure the best home financing.

They don't max out their cards.

It's better to keep a low revolving balance on a few cards than to spend every dime allotted on one. The ratio of credit card balance to your credit limit is called credit utilization. The higher your credit utilization, the larger affect it can have one your credit score.

They make payments on time.

This is very likely the most important tip for your credit health. If you miss a payment on a term loan, credit card account or monthly home bill, then you could be turned over to collections, which will affect your score negatively.  You will almost surely be reported as late to the credit bureaus, which will in turn drop your credit score precipitously. Absolutely make all of your payments before their due date.

They stay with one card.

Don't close and open credit card accounts frequently. Each time you make a change to your line of credit, it affects your score. Even if you don't want to be tempted to use a credit card, keep the account open and leave the card at home. According to the Fair Isaac Corporation (FICO), high credit achievers have accounts that are usually at least 11 years old.

Excellent credit could qualify you for a better interest rate, which might save you thousands of dollars over the life of the loan. So stay on top of your monthly credit bills and keep a low balance on just a few cards to watch your score steadily increase.

If you're ready to learn more about your ability to purchase a Rockville home, call your trusted home financing professional today.

3 Critical Tips To Improve Your Credit Score And Mortgage Terms

When you are looking for a mortgage for your home, your credit score is very important. Any potential lender will check your score and will use the number to assess your creditworthiness and the interest rate that they offer you.

The better your credit score the lower the mortgage interest rates will be available to you, as the lender will be able to see that you can handle credit well.

However, if you have a very bad credit score, it could be causing you to be offered high interest rates on your mortgage that could cost you thousands over the years.

Improving your credit score before searching for a mortgage will ensure that you get the best rate possible. But what can you do to improve your credit score?

Here are three tips that can help you improve your credit score and your mortgage loan:

Be Patient

Remember that improving your bad credit will be a little bit like losing weight. You might not see results right away but it is the long term benefit of your good habits that will make all the difference.

When it comes to all of the ways to improve your credit score, there are no quick-fixes and the best way to rebuild your credit is to be responsible over time.

Check Your Credit Report For Errors

If you don't know precisely what your credit score currently is, the first step will be for you to obtain a credit report. You can request a free copy of your credit report and check it over carefully for errors. There might be an error on the report that is making your score appear worse than it should be.

Set Up Payment Reminders

If you have trouble remembering to make your credit payments by the due date, this can be one of the biggest negative factors bringing down your score. You can ask your bank to set up convenient reminders through the online banking portals so that you will receive an email or a text whenever your payments are due.

Your credit score is very important when looking for a Rockville home mortgage, as it will mean that you receive much better program options and interest rates. Keep these tips in mind so that you can enjoy the best rates possible on your mortgage.

For more tips on how to improve your prospects for the best mortgage, feel free to contact your local, trusted mortgage professional.