New Year - New Score ?

The current credit scoring system sometimes forces us into playing a game we may not want to play but it is necessary, if we want to be advantageously lendable in today's society. Your FICO Scores consider both positive and negative information in your credit report. Factors used to calculate your credit score include repayment history, types of loans, length of credit history, debt utilization, and whether you've applied for new accounts. A credit score plays a key role in a lender's decision to offer credit and for what terms.

That said, there could be a few simple tweaks you or someone you know can make in the new year that lead to boosting your score and getting a lower interest rate when it comes time to purchase or refinance. So I am sharing, but know that I am not a credit expert. 

In my nearly 35 years Real Estate experience, I have a good understanding of what mortgage lenders do and how they help clients find the best program and rates available. One of those things is credit boosting, known as a rescore, and the other is looking at debt paydowns and other strategies that may help create more room for savings.

All that said, please see some basics below, and let me know if you have any questions. I can refer you to a Mortgage expert.

Four Important Facts About Your Credit Score

Overall, there are five main factors that affect your credit score. As you can see below, some – like payment history – have a bigger impact on your score than others:

·   Your payment history (35%)

·   Your account balances (30%)

·   Your credit history length (15%)

·   Types of credit you hold (10%)

·   Number/type of credit inquiries (10%)

For mortgage purposes, credit scores break down like this and are all lendable:

·   760+ is an excellent score

·   720 - 759 is a very good score

·   680-719 is a good score

·   620 to 679 is a fair score

·   580 to 619 is a poor score

Your payment history is one of the most important credit scoring factors and can have the biggest impact on your scores. Having a long history of on-time payments is best for your credit scores, while missing a payment could hurt them. Also multiple lines of credit open can hurt your credit score, but that doesn’t mean you should close any accounts that already exist. Doing so can be very damaging to your score, unless all of your credit lines are at 0% utilization. 

FICO recently adjusted its scoring model, which could affect your credit score and the credit cards you qualify for. Keep in mind that 90% of lenders use FICO to make lending decisions. 

What is the fastest way to boost credit score?

1.      Pay down your revolving credit balances. If you have the funds to pay more than your minimum payment each month, you should do so. ...

2.      Increase your credit limit. ...

3.      Check your credit report for errors. ...

4.      Ask to have negative entries that are paid off removed from your credit report.

I hope this clears up some key points about credit scores. As always, if you have any financial questions please reach out. I am happy to refer you to a mortgage/lending expert.