Understanding your credit score
Your credit score is more important than ever. It can affect everything from Insurance, to your job and your ability to be approved for a loan and the rate you get when borrowing.
Credit scores range from 300-850. Scores below 620 are considered bad, above 680 good, above 750 excellent.
The biggest piece of your score is the obvious, payment history, but this only accounts for 35% of your score. The second biggest piece revolves around your balances and is where people most often get hurt. 30% of your score is based on your available balances. The other way to look at this piece would be your balance in relationship to limit. This isn’t based on the dollar amount, it is purely percentage.Typically you want your balance to be below 20% of the limit during the billing cycle. Even if you pay off the bill every month you will hurt your score by maxing out a credit card.You also do not need to carry a balance to generate a score, you just need activity.
15% of your score is time, the longer your history the higher your score (assuming the pieces are good). This means: Keep your accounts open… Closing your accounts not only shortens your history, but it removes available credit, hurting 45% of your score.
10% of your score – New credit:New accounts will temporarily lower your score until there is a history and too many inquiries will lower your score.
The last 10% falls into the types of credit you carry.Loans from finance companies can adversely affect your score.These typically fall into the high interest rate loans, so they hurt twice.
Summing up: Pay your bills on time.Keep your balances low. Maintain activity on a minimum of 3-4 accounts (no activity= no score).Keep old accounts open. DON’T close revolving accounts. Don’t carry balances. Don’t Max out credit cards. Never close an account with a balance.If you are rebuilding from past mistakes –The most recent 12-24 months are weighted the most in the scoring model, so distance between the good and the bad will help a score climb.
Higher scores will not only make it easier to be approved for a loan, but it will also get you that loan at the best possible terms. When applying for a Conventional Mortgage the minimum Credit Score is 620 and there are significant add-on's to the rate for every 20 points in credit score below a 740 score.
Have a great week!
Mortgage Loan Originator
NMLS ID# 248937
http://robertrauf.remn.com/Default.aspx or my blog: http://activerain.com/blogs/rrauf
(732)557-6920 x102
Since 1987 I have been helping my clients fulfill their dream of home ownership!
Real Estate Mortgage Network Inc.
Real Estate Mortgage Network, Inc. is located at 16 Madison Avenue, Building 2 Suite 2D Toms River, NJ 08753. NMLS #6521. New Jersey Licensed Lender and Mortgage Banker #L041053. Visit www.REMN.com for more information.
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