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Credit can be a scary subject to approach because it’s often unavoidable. Credit affects a lot but it can also be a great financial tool when used properly. Hi I’m Michele Irizarry, CEO and Broker of Shore Prime Properties. Are you already following us on Facebook or subscribed to our YouTube channel? Every week we bring new videos with tips for home buyers and home sellers that are chock full of useful information. So if you haven’t already done so, be sure to hit that button. When your credit score is good, your rates, loans and other aspects of your finances will likely be good, too. We will cover popular questions about credit to help you to master your credit score once and for all.
How is a credit score calculated? The calculation of your credit score which can range from 300 to 850 is a measurement of several factors. Let’s break down the list of percentages that are based on the standard FICO credit score. 35% is made up of your payment history. Missing a payment can be a score sinker but paying on time or even ahead of time can be a great boost to your score. Thirty percent is made up of the amount of money that is owed. Depending on the amount of available credit you have, you can either be under or overextending. If it’s the latter, banks may believe you are at higher risk of default. 15% focuses on the length of credit. The more time you spend building your credit the better. 10% is for your credit mix. The number of credit cards or other types of credit you have can help or hurt you. It is best to have a good mix of credit cards, loans and retail accounts. 10% focuses on new credit. Banks will consider how much new credit you take on within a short period of time so avoid opening multiple accounts in the span of a few months. Credit scores are ranked on this scale: 300 to 579 is considered a poor score, 580 to 669 is considered to be a fair score, 670 to 739 is considered to be a good score, 740 to 799 is considered to be a very good score, 800 to 850 is considered to be exceptional. A trusted financial advisor can help you to better understand your score and its impact on your financial well-being.
Why do credit scores matter? Most people know their credit score or at least have an idea of the range. However if you haven’t looked at your score before, you are entitled to one free credit score report every 12 months from any of three national credit reporting companies: Equifax, Experian and TransUnion. Many websites claim to be free and secure but it is best to use the ones authorized by the federal government. Your credit score matters for several reasons beyond applying for a credit card or loan. Overall, the number assigned to your name represents how likely you are to repay the debt which is a big deal to lenders in any capacity. Credit scores can also impact everyday finances from mortgage rates to insurance.
Can accessing my score lower it? There are many myths about credit one of the most common being that checking your credit score will lower it. This is false. You can look at your credit score through credit card companies or other safe avenues as frequently as you’d like without penalty. In fact, checking your score regularly is a good way to ensure that your information is accurate, up to date and not compromised by fraud. Looking at your credit score or credit report is considered a soft inquiry. However, if you decide to take a large purchase such as a home mortgage, shopping around for rates with different lenders can affect your score as this is considered a hard inquiry.
How does credit affect my home loan? Lenders can be particular about your credit score when reviewing your application for a home loan because they want to ensure that you are responsible enough to make the payments on time. While credit is just one factor in your application, it is an important one. Home loan lenders are businesses that rely on your payments for their income so you’ll need to show them that you are responsible. Simply put -the higher your credit score, the higher your home loan can potentially be. When paying off your mortgage a difference of a few points could mean the difference between a four percent and a four and quarter percent rate which can add up when paying off a traditional 30-year fixed-rate mortgage. If your score is low, you may want to consider adding a letter to your application to explain any temporary outstanding dips in your credit history. Overall, be prepared to speak with a lender who has questions about your score. Print out a credit report and speak to a financial advisor with any questions.
Can I clean up and fix my credit score? So you’ve checked your credit score and you’re unhappy. Don’t worry! You can bring it back up. Here are a few tips to fight a low score: Consider enrolling in auto pay. As previously mentioned, missing payments is a score sinker. Utilize the autopay function on credit cards so you don’t miss any payments. You should still check to ensure that the payment went through and that you’re paying off as much as you can. This is merely a safety net to prevent any late payments and any fees associated with them. Cancel unused cards: If you’re not using a certain credit card or line of credit, drop it. Unused credit is wasteful to your credit score. Since part of your score is calculated by your credit usage it’s best to stick to cards and retailers that you like and will use. Downsize your debt: One of the simplest ways to bring your score back to where you want it is to get out of debt. If you’ve been using too much of your credit line, start paying in larger chunks if chipping away with the minimum payment isn’t getting you anywhere. Figure out where you can cut back on spending and put that money towards your debt.
You can master the credit world, as intimidating as it can be, but you don’t need to do it alone. A trusted advisor can cater to your specific needs when it comes to improving your credit standing. If you’re curious about how much you can afford to borrow for your new home feel free to reach out to us here at Shore Prime Properties. We have an excellent network of professional loan officers that can help you maximize your credit score to get the best mortgage terms. I’m Michele Irizarry, selling prime real estate at the Jersey Shore.
