Home Loans and Your Credit Score
There are several things that change your credit score and several changes you can make to improve your credit score before you know it. As Home Loan Credit Score points out, very often your score can be improved by simply addressing issues that you’ve overlooked or didn’t notice. That’s why it’s vital to check your credit report at least once a year, if not more often. By making note of, and dealing with issues like late payments, the amount of credit you have available, and the number of requests you have for new credit, you can stay away from many of the credit related issues and even work to improve your current credit situation.
You might be surprised to learn just how much your FICO score is concerned with the interest rate you get on your home loan. Just raising your FICO 50 points can eliminate the cost of hundreds of dollars over a twelve month period on your mortgage payment. If your mortgage payment is $1,080 at a 5.051% interest rate that same payment at a 4.829% interest rate would cost you about $1,050. That’s $360 a year, or $10,800 over the life of your mortgage. If you better your credit score 100 points, those numbers more than double. The most exciting thing about this is that quite often you can better your FICO score approximately 125 points in less than 2 months.
Considering that such a piddling lowering in your interest rate can drastically reduce your mortgage payment, it’s well worth getting your FICO score improved if you are able before trying to get a mortgage. To do this, you need to address 5 areas of your credit report.
35% of your credit score is dealing with your payment history. This area is related to any late payments you may have, bankruptcies, charge-offs or collections and can have some unwanted results on your credit score. Information in this area can be challenged if it’s not accurate, but should be done with the steering of a Credit Score Professional.
30% of your FICO score is concerned with remaining debt. By keeping your debt under 50% you can raise your credit score. By keeping your balances below 25%, you are showing responsibility that is desirable risk to creditors and this can lead to considerable enhance score.
15% of your score is based on the length of your credit history. Keeping accounts in existence for as long as possible will increase your credit score. Ideally, you want to have accounts that are open for longer than 7 years. This area can be addressed by keeping low the accounts you close and not moving old account balances to new accounts.
10% is related to the sort of credit you use. By having a cross section of different types of credit, having several accounts that are installment loans, revolving accounts and mortgage loans you can greatly improve your FICO score. It’s also worthwhile to avoid high risk “consumer finance institutes.” These types of accounts can reduce your credit score because they’re considered to be last resort creditors.
The final 10% is associated with new credit. This area lends itself to the length of time it’s been since you opened your newest account. Also having more than 4 inquiries on your credit history within a 6 month period can have an adverse affect on your score.
To find out more about how you can raise your credit score and how to more wisely manage the different parts of your credit, look into Improving Your Credit Score, and Review Your Credit Report.
This article is written by Morgan Best.
