What determines my credit score - Credit scores have become very important to consumers for a variety of different things. Your credit score determines whether you will be, approved, declined, required to place a large down payment, or have to obtain good or very unfavorable terms for not only mortgages, home loans and cars, but for a variety of other things as well. Your credit and credit scores can now play a major role in determining what premiums you pay for homeowners and auto insurance, whether or not a utility company (phone service, gas service, electric, etc...) will require you to place a deposit down to get service turned on (and how much of a deposit), your rate and determine whether you will be approved or declined on personal loans and credit cards, whether or not you are able to rent an apartment or home, amongst many other things. Many employers now look at a potential employees credit report before hiring them. Therefore, you can see how credit and credit scores can play an important role in your life and with bad credit it can force you to pay higher interest rates, higher payments and higher premiums on numerous different items. There are many factors that help contribute to determine a persons credit score that you will learn about here.
Whether you pay all your bills on time is probably one of the more important aspects that determines your credit scores. Most companies that extend credits to you report to the major credit repositories on a regular basis. Any late payments history will have a negative effect on the credit scores. The more recent the reported "lates", the higher the impact on scores. Lender banks consider mortgage payment "lates" much more severe than credit card late payments, and punish homeowners with mortgage "lates" accordingly with higher interest rates and/or lower loan amounts.
Your credit report will list any collection or charged-off accounts that you may have. Having these kind of accounts reporting will definitely have an adverse affect on your credit score. A word of caution though. Paying off collection accounts, especially older ones may cause your credit score to go down, at least in the very short term. If you are applying for a mortgage please consult with a mortgage professional such as myself before paying old collection accounts.
The number of recent inquires has an affect on your score as well. Although it does not carry as much leverage as many other factors in determining your credit score you should still avoid having your credit checked unless nessecary.
The companies that determine your score do not fully disclose all the inner workings of what goes into your score. Granted they tell you what percentage of types accredit help or hurt you but they dont get into the nuts and bolts of it all. There are however some basic rules of thumb. One rule of thumb is to have your balance be lower then half the highest available balance. So if your highest available balance on a visa card is say 10k. Make sure your actual balance is below 5k.
There is also a seasoning factor. Someone who has maintained good credit standings for a long period of time will generally have a higher score then someone who just established their credit.
The number of open accounts you have influences your credit score. Less than 3 or more than 5 can decrease your score.
If you have had a bankruptcy, you can expect it to stay on your credit report for up to 7 full years. Although it will still show, there are ways to still increase your credit score after a bankruptcy.
How can I increase my credit score? - There are many ways that you are able to increase your credit score. Making all of your monthly bill payments on time is one way. Keeping the balance of total available revolving debt limited to approx. 30% of your total credit limit is another way.
You can increase your credit score by disputing errors found in your report. You will need to dispute errors with each bureau separately. If you can provide proof of errors in your credit report while applying for a mortgage ask your loan officer to do a rapid rescore. This can help raise your score in as little as 3 days.
So to summarize, you can increase and keep your scores high by:
-Paying your bills on time
-Keeping balances low on credit cards.
-Paying off debt rather than moving it between credit cards.
-Applying for credit accounts ONLY when you need them.
-Checking your credit report regularly for accuracy.
-Get current and stay current on all accounts. The longer you pay your bills on time, the stronger your score will become.
Contact your mortgage expert for other ways you can improve your score that are specific to your current credit profile.
If you don't currently have one working for you, call 415-617-5448 and ask for Home Jones.
To increase your credit score you can also limit the number of credit inquiries that you have against you by limiting the amount of new credit applications you complete (stop applying for the credit cards that offer a free gift giveaway when you apply). You can also make sure that you don't close old accounts because the length of your credit history plays an important role in credit scoring. A long established credit history is much better than a short patchy credit history.
Avoid taking on consumer installment credit accounts. These are the type of accounts offerred by retail furniture, appliance, etc. type stores. Many offer "90 days same as cash" or "no interest for one year" to sound attractive. Having these type of accounts will have a negative effect on your credit score.
Also make sure that you do not let past due accounts get turned over to collection. Not only will you lose a good tradeline account you will also impact your credit score negatively when the collection reports on your credit report.
Another good way to increase your score is to take out a secured credit card. The credit card will show the creditors that you have more available credit to you. The longer the card is open, the better that it reflects on your credit as well. Also, since it is already secured with your money, you will not be able to get yourself into any sort of spending trouble or bad habits.
30, 60, and 90 day late payments hurt your score more than anything else. A 30 day late payment occurs as soon as the payment is late, not 30 days after it is late. Creditors will not always report late payments immediately, if you make the payment soon after the due date. However, you can't depend on this. The best thing you can do is make all of your payments early, just to be sure they are paid on time.
If you cannot afford to pay your crdit card balances down to 30% or less, you may request that your creditor increase your limit. This will accomplish the same thing, although you can't rely on the creditor's willingness to cooperate. Do not try this if you have a habit of paying for things with the card. You don't want to get yourself into more trouble.
If you have limited credit lines open, you may want to consider having a family member or friend add you as an authorized user to one of their cards. Although it will show that you are an authorized user, the entire credit history for this account will appear on your credit report. So, for example, if your mom has had a Visa card for over a period of years and adds you as an authorized user, that account will now appear on your credit report with its entire history. Of course, you want to make sure that it is a clean credit history before doing this! And if your family member or friend has concerns they can always add you to the account without actually issuing you a card to use.
To increase your credit score it is important to pay your bills on time and decrease your credit balances. Contact a mortgage broker for further advice to help you improve your credit.
Not honoring the contracts you signed with mobile phone companies can also ruin your credit. Many wireless companies offer free cellular phones if you agree to use their services for a certain number of years. If you terminate subscription to their services, these wireless companies may attempt to collect on the cost of the phones and if fail, will report to the credit bureaus.
If you have a unpaid collection on your credit report that has been several years old, be careful if you plan on to pay that off. Once that is paid, that item gets updated and then moves to the top of your report. Newer derogatory items count more negatively toward your score than older items.
To determine how to most effectively increase your FICO credit score, certain mortgage companies may utilize computer software which can simulate what certain changes to your credit report, for example paying down balances or closing certain accounts, may have one your credit score.
How Does Credit Score Affect Mortgage Rates - If you are applying for a home mortgage keep in mind that your credit score will more then likely affect your mortgage interest rate. Each of the three major credit bureaus, Equifax, Experian and TransUnion, collects data from your current and past creditors about your history of borrowing and paying back credit. If you have a poor payment history you credit score will be reduced and your mortgage interest rate will be higher. If you have a good payment history and have a higher credit score you can expect your mortgage interest rate to be lower.
Although your credit scores have major impact on your rates, there are some portfolio lenders that care more about the ratio of your loan amount to the value of your home. If you can lower that ratio, the lender may be more forgiving on your credit score.
If your credit score is below 500, or you have an open foreclosure, you can expect mortgage rates in the double digits due to the severe risk assumed by the lender. You should also expect to borrow a substantially lower percentage of the value of your home, so that means either a lot (40% or more) of equity in your home in a refinance or a 35% to 40% downpayment if you are attempting to purchase a home.
Your credit scores are a big factor when it comes to which lenders will accept your application for a loan and which lenders will turn you down. The higher your score the more lenders you will have at your picking with a variety of programs to choose from.
Your Credit Score usually is one factor in determining your mortgage rate. Lenders will often start with a base rate for the borrowers with higher credit scores then raise rates as credit scores decline.
It's virtually impossible to change your score in the time between when most people decide to buy a home or refinance their mortgage and when they apply. The higher your score, the less of a risk the investor takes.
In most cases, if the loan applicants have very high scores, such as over 720, and with no negative entries in the credit report, banks would approve the applications without requiring income and asset documentations such as W2's, paystubs, and bank account statements, while still offering the low interest rates of full documentation loans.
FHA and VA loans generally do not punish people with lower credit scores, as long as the overall credit meets their guidelines.
Having a high credit score does not guarantee that your loan will be approved by a lender, nor does it guarantee that you are going to qualify for the best rates available. There are numerous other factors involved such as what type of income documentation is required (for example stated, NINA, NIVA, No Doc, full doc, etc...), the purpose of the loan, the LTV (loan to value) of the loan, amount of reserves, any prior bankruptcies, and many, many other factors will help to determine whether you qualify for a mortgage altogether and what type of rate you will qualify for. Therefore, don't fall into the trap of thinking that you are going to get a certain rate just because your credit score is extremely high (although it does help) or you are going to get a really bad rate because your credit score is a little below where the lender prefers it to be. There are many situations when compensating factors come into play and your mortgage rate can be affected by more than just your credit score alone.