Did You Know This About Your Credit?

Credit scores assess risk and determine whether a borrower is approved or declined for a mortgage, credit card, or some other type of credit. The score is a numerical value ranging from a low of zero to a high of 850 or 900, depending on the credit bureau.

The higher the score, the more likely the lender will be repaid on time.

1. A higher credit score could help you get a lower interest rate
2. You can get a free credit report from all three major bureaus at www.AnnualCreditReport.com.
3. Your credit score doesn't have to be perfect to get a loan ... most lenders want buyers to have a minimum of 620 but FHA will consider as low as 500
4. Credit utilization, the percentage of credit used compared to what is available, should be kept below 30%; amounts higher could negatively affect your credit score.
5. There is a difference between a soft and a hard credit pull.  The former doesn't hurt your score, but the latter can lower it by a few points.  Try to avoid multiple hard inquiries.
6. Credit cards, bank loans, car loans, and home loans are considered "good credit" and a mixture of different types is helpful compared to only a car loan.
7. Opening new credit accounts after you apply for a mortgage can hurt or even prevent you from being approved for the mortgage.

There are five components to making up a credit score.  35% of the weighted average is determined by payment history, like paying on time.  The next highest item is the amount owed which counts for 30% of your score.  This component deals with credit utilization, which is a percentage of what you owe divided by what is available.

The time you have had credit established accounts for 15% of the score.  New credit and the types of credit accounts are weighted at 10% each.  Opening several accounts in a relatively close period will negatively affect your score. While having all types of credit like credit cards, installment loans, finance company accounts, and mortgage loans isn't necessary, the types of credit in the mix are evaluated.

If you need help increasing your score, a trusted lender who provides your pre-approval can also make suggestions to improve your credit.  Contact your real estate professional to get a personal recommendation from a trusted mortgage lender.

If you have any questions or want to sell your property, contact me at (609) 948-4306. I look forward to hearing from you.