Credit Score Primer- Determining your Credit Score
In today's tumultuous banking and real estate environment, lenders are looking at your credit score more than they have in the past.
Real Estate prices have dropped significantly, interest rates are low and sellers are tending to give a lot of concessions to buyers. This could be a great time to buy for a first time home buyer or a move up buyer. Don't let your credit score get in your way.
It is important to get in touch with a mortgage professional early in the home buying process so that there are no surprises when it comes time to put in an offer on a property. The higher the credit score, the more likely hood you have of securing a mortgage and getting the best possible interest rate. Because lending institutions are looking much closer at credit scores, it is important to get your credit score as high as possible.
If your thinking of buying in the next year now is not to late to start talking to a mortgage professional. If your credit score is lower than you expected, sometimes there all small things that can be done to improve your credit score, in a relatively short amount of time. A good mortgage originator or loan officer can start you on the process. Unfortunately, there is nothing taught in school on how to protect your credit score. It is a highly complex alogorithm that is developed by the major credit reporting companies. I put together a very basic primer on how your credit score is determined for securing a mortgage.
Payment History - The credit bureaus (Equifax, Trans Union and Experian) look at your history of making payment on time. Payment Historymakes up largest factor in determining your credit score. Two things to remember:
How recent are your lates. The more recent the late payment(s) the more it impacts your score. As they age out they tend to impact your scores less and less. Secondly, do you have back to back late payments and are any of them 90 days out. Credit Bureaus don't like what is called rolling lates and they can signicantly impact your score. Pay your bills on time!!
Amounts Owed- This is another biggie, making up 30% of the credit score determination. What the bureaus are looking for here, is how much do you owe in comparison to your high limit available your average daily balance, for that particuliar account. With revolving credit (credit cards, lines of credit and home equity) your average daily balance should be 50% or less of your high limit. Secondly they are looking at how many accounts do you have open. Three to five is generally a good number. But before you start closing accounts talk to someone with experience with credit scores, its not always as simple of closing credit accounts. Paying down your accounts can be a great idea and sometimes not cost a lot of money. For example say your high balance is $3,000. You owe $1750 on that credit card. Just paying that account down $251 can quite an impact on your score.
Length of History- The older the credit line the more favorable for the credit bureaus. It shows a long history of payment or problems. So a line of credit that is 10 years old with a lower high balance is more important than a line the has a greater high limit but is only 6 months old. Do not just close lines of credit with out careful consideration of the impact it will have on your score.,
New Credit Accounts- The credit bureuas want to know have you been opening a lot of new accounts. That could be a sign of trouble. Opening new department store accounts where ever you go can save you that 10% on your one time purchase of a $100 but can cost potentially thousand of dollars or more over the life of a mortgage. Or moving a balance of one line of credit to a new lne of credit to get a higher limit or to avoid paying for a month can be detrimental. Think before you open a new account, do you really need it.
Types of Credit- Mortgage, Installment Loan, Revolving Credit all impact your credit in various ways. Mortgages are looked on very favorably if they are paid on time. On the other side of the coin, late mortgage payment are counted more haevily than other lines of credit. Installment loans are the credit bureas least favorite type of credit. I you have a lot of installment loans for consumer goods, that is a great concern for the bureuas.
Determining your credit score is very complex, this is just a basic explanation fo how your score is determined. By talking with someone early in the process it allows you to see if there are any mistakes and believe me there can be mistakes. You can also see if there are minor things to improve your score that might affect the type of mortgage or your interest rate you are offered. Yor credit score is teired into groups 600-620, 620-650, 650-680, 680-700, 700-720 and 720+. Where this raising your score can be really important is if the new score can put you in a new teir. Say your credit score is 676 and you are four points off of scoring a 680 or more. Very little time and no or little money could raise your score enough to lower your interest rate of get you into a better program potentially saving you thousands of dollars.
More info about credit scores
No one can garuntee what will happen with your credit score when you work on raising your score, but a good loan officer will be able to guide you through that process.
If you are thinking of entering the market place and you have any questions please do not hesitate to call me at 978-360-0422. Its never to early to start thinking about buying.
This post was provided by Kevin Vitali of EXIT Group One Real Estate In Tewksbury MA. You can contact Kevin by email at
kevin@kevinvitali.com or call
978-360-0422.
I pride myself in the quality of my work helping buyers and sellers make dreams come true.
Real Estate Services in the towns of Andover, Billerica, Boxford, Chelmsford, Dracut, Georgetown, Groveland, Haverhill, Lawrence, Lowell, Merrimac, North Andover, Newbury, Newburyport, North Reading, Rowley, Tewksbury, Tyngsboro, Westford, Wilmington, West Newbury