There are several things that affect your credit score and several changes you can make to improve your credit score in a relatively short amount of time. As Home Loan Credit Score demonstrates, very often your score can be raised by merely addressing issues that you’ve overlooked or didn’t notice. That’s why it’s vital to address issues on your credit report fairly frequently. By being attentive, and addressing things like late payments, the amount of credit you have uncommitted, and the number of requests you have for new credit, you can stay away from many of the credit problems and even work to improve your current credit situation.
You might be surprised to learn just how much your FICO score actually affects the interest rate you get on your home loan. Just raising your FICO 50 points can eliminate the cost of hundreds of dollars over a twelve month period on your mortgage payment. If your mortgage payment is $1,080 at a 5.051% interest rate that same payout at a 4.829% interest rate would change your payment to about $1,050. That’s $360 a year, or $10,800 after all of your mortgage. If you better your credit score 100 points, those numbers more than double. The most exciting thing about this is that much of the time you can raise your FICO score about 125 points in as little as than 2 months.
Considering that such a petty lowering in your interest rate can lower your mortgage payment, it’s a good idea working at getting your FICO score increased as much as you can before applying for a mortgage. To do this, you should address 5 areas of your credit report.
35% of your credit score is associated with your payment history. This area is related to any late payments you may have, bankruptcies, charge-offs or collections and can have some negative impact on your credit score. Information in this area can be challenged if it’s not correct, but should be done with the direction of a Credit Score Professional.
30% of your FICO score is related to outstanding debt. By keeping your debt under 50% you can raise your credit score. By keeping your balances below 25%, you are modeling responsibility that is desirable risk to lenders and this can lead to a much higher score.
15% of your score is based on the length of your credit history. Keeping accounts open for as long as possible can improve your credit score. Ideally, you want to have accounts that are open for longer than 7 years. This area can be managed by keeping low the accounts you close and not moving old account balances to new accounts.
10% is akin to the sort of credit you use. By keeping several different kinds of credit, having many accounts that are installment loans, revolving accounts and mortgage loans you can effectively raise your FICO score. It’s also helpful to avoid high risk “consumer finance institutes.” These types of accounts can reduce your credit score because they’re considered to be last resort creditors.
The final 10% is associated with new credit. This area lends itself to the length of time it’s been since you opened your newest account. Also having more than 4 inquiries on your credit history within a 6 month period can seriously affect your score.
To learn more about how you can raise your credit score and how to more wisely manage the different area of your credit, read Improving Your Credit Score, and Review Your Credit Report.
This article is written by Morgan Best.