The Power of Your Credit Score

Your credit score is a number between 300 – 850, and the higher your credit score is, the better you look to lenders! Whether you want to buy a car, get a mortgage loan, or make payments on any large purchase, your credit score helps the lender evaluate your creditworthiness. Simply put, the lender wants to know what risk is involved in lending you money.

There are three main credit reporting companies (CRCs) that compile credit scores; Equifax, Experian and TransUnion.  Each of these agencies generate a FICO® Score, VantageScore®, or another type of score; based on what scoring system the lender uses.*

The resulting scores from the three CRCs are usually not exactly the same, and the lender typically recognizes the mid-range score.

Bear in mind, there are other things the mortgage lender will look at. But, your credit scores play a significant role in your ability to obtain a home loan. Here are the five factors that make up your credit score, based on the FICO scoring model.

•    Payment History = 35% of your score
This portion of your score tracks whether or not you make payments on time. This includes information reported from credit card accounts, retail store accounts, installment loans, loans from finance companies and mortgage loans. Late payments, collection accounts and bankruptcies have a negative effect in this area.

•    Amounts owed = 30% of your score
This portion of the score looks at the total amount of money you owe. In regard to credit cards, this tracks the ratio of the amount of credit used in comparison to the amount of credit available. It also tracks installment loans (such as car loans), and how much is currently owed in comparison to the amount of the original loan.

•    Length of Credit History = 15% of your score
This portion of your score takes into consideration how long you’ve had specific credit accounts, and the total average of all of those accounts. So, you don’t necessarily want to  get rid of your old credit cards. That history could help you in this area.

•    Types of Credit in Use = 10% of your score
This part of your score looks at the mix of credit you’re using and how you manage all of those credit lines together. If you’re just trying to establish credit, start by opening one credit account and make your payments on time before you add more credit lines into the mix.

•    New Credit = 10% of your score
This percentage of your score looks at how many credit lines are new, and the number of inquiries that have been placed. For example, when you apply for a new credit card, student loan, auto loan or a mortgage, that’s considered to be a “hard inquiry”. Too many hard inquiries in a short period of time will lower your credit score. However, if you apply for a job and the employer does a background check, that’s a “soft inquiry”, which doesn’t affect your credit score. Also, if you check your own credit score, it does not lower your score.

There are many companies that advertise credit repair services and free credit reports. AnnualCreditReport.com was created by Experian, Equifax and TransUnion and is recommended by the Federal Trade Commission (FTC). This service entitles you to get a free credit report once every 12 months from each CRC.

It’s best to order all three credit reports at the same time ‒ six months before you apply for a home loan ‒ and examine them carefully. Remember, the higher your credit score is, the better it is for you when it comes time to apply for a mortgage.

Have You Set Your Course?

The safest financial and mortgage plans don’t involve excessive risk, which means results don’t happen overnight.

Setting a goal and staying true to the course is most likely to pay off in the end.

Patience, persistence and a market that doesn’t deviate too far from the norm make a well-structured plan work well over time. Hoping for the best and setting sail in whatever direction the wind blows might be appealing at the moment but will rarely get you where you ultimately want to be.

When you need help, reassurance or even a course correction, we’ll be here for you.

Weekend Trips Tips!

Just in case you are thinking of traveling anytime in the near future, here are some quick tips to prevent your home from burglary while you’re out of town.

• Let the local police know when you are leaving and how long you will be gone.
• Stop your newspaper and mail delivery until you return.
• Activate your alarm system and let your security company know how long you will be out of town. If you don’t have an alarm system, have someone you trust to check on the house for you.
• Make sure every door and window is locked securely. This includes pet doors!
• Use timers to turn lights on and off, to make it look like you’re at home.
• Put your valuables in a safe or safe deposit box.
• If it’s winter time, make arrangements to have someone shovel your driveway. If it’s summertime, have someone mow your lawn.
• Shut down your home computer.

 

All of these suggestions will give the illusion that there is someone home! I hope you found these ideas to be helpful, and please do not hesitate to contact me if I might be of any assistance to you!

Managing Credit Scores

Recent tallies show a third of U.S. credit scores fall below 649. While not impossible, acquiring a mortgage loan will likely be more difficult and more expensive at this level than with higher scores.

 

Here are the fundamentals to guide you in establishing and maintaining a healthy and legitimate score.

 

The somewhat obvious:

  • Borrow only what you can afford to repay.
  • Make all of your payments on time.
  • Avoid excessive requests or inquiries for credit
  • Have an emergency account to pay for unexpected expenses
  • Check your report annually to contest and remove any erroneous information.

 

The not so obvious:

 

  • Do not open new store credit cards just to save on a purchase. New accounts can lower your score, and too many payments can be difficult to manage. Saving 10% on a $300 lawn mower means little if it costs you even just fractionally more on a $300,000 home loan.
  • Do not open new accounts just to transfer balances for an introductory rate. In addition to possibly lowering your score, these offers often have traps. Instead, use them to leverage a lower rate from your existing card company.
  • Do not close old accounts. If you have a good record of payments on old accounts, these will benefit your score. Using them occasionally and conservatively will keep them active and contribute toward a good score.
  • Do not be afraid to use credit. Without the use of credit, you will have no score, and that can be just as bad as a low one.
  • Keep a high credit line and a low balance. Credit utilization ratios measure this relationship, and lower is better.
  • Maintain a variety of account types. A combination of revolving, installment and secured financing along with excellent records of payment will yield a higher score. Still, don’t run out and open an account just to have diversity, as this is the least influential factor.