Posted by Mary-Lou McDonough on 4/10/2017

Credit is tied to most big financial decisions you will make in your life. From things as little as opening up a store card at the mall to buying your first home, your credit score is going to play a factor. When it comes to mortgages, lenders take your credit score, particularly your FICO score, into consideration in determining the interest rate that you will likely be stuck with for years. How is your credit score determined and what can you do to use it to get a better rate on your mortgage? We'll cover all of that and more in this article.

Deciphering credit scores

Most major lenders assign your credit score based on the information provided by three national credit bureaus: Equifax, Experian, and TransUnion. These companies report your credit history to FICO, who give you a score from 300 to 850 (850 being the best your score can get). When applying for a mortgage (or attempting to be pre-approved for a home loan), the lender you choose will weight several aspects to determine if they will lend money to you and under what terms they will lend you the money. Among these are your employment status, current salary, your savings and assets, and your credit score. Lenders use this data to attempt to determine how likely you are to pay off your debt. To be considered a "safe" person to lend money to it will require a combination of things, including good credit. What is good credit? Credit scores are based on five components:
  • 35%: your payment history
  • 30%: your debt amount
  • 15%: length of your credit history
  • 10%: types of credit you have used
  • 10%: recent credit inquiries (such as taking out new loans or opening new credit cards)
As you can see, paying your bills and loans on time each month is the key factor in determining your credit score. Also important, however, is keeping your total amount of debt low. Most aspects of your credit score are in your control. Only 10% of your score is determined by the length of your credit history (i.e., when you opened your first card or took out your first loan). To build your credit score, you'll need to focus on lowering your balances, making on-time payments, and giving yourself time to diversify your credit.

What does this mean for taking out mortgages?

A higher credit score will get you a lower interest rate. By the time you pay off your mortgage, just a hundred points on your credit score could save you thousands on your mortgage, and that's not including the money you might save by getting lower interest rates on other loans as well. If you would like to buy a home within the next few years, take this time to focus on building your credit score:
  • If you have high balances, do your best to lower them
  • If you have a tendency to miss payments, set recurring reminders in your phone to make sure you pay on time
  • If you don't have diverse credit, it could be a good time to take out a loan or open your first credit card
When it comes time to apply for a mortgage, you'll thank yourself for focusing more on your credit score.




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Posted by Mary-Lou McDonough on 12/19/2016

You may think your credit is perfect because you pay your bills on time and never miss a payment. If you are having trouble getting a loan and don't know why, it could be that your credit habits are scaring away lenders. Here are some items that may be lurking in your credit report that are making lenders leery: Multiple Lines of Credit If you have a lot of open credit cards this can be a bad signal to lenders. Lenders see this as an indication that you might be having financial difficulty. Credit Inquiries Lenders also don't like it when you inquire about new lines of credit. Applying for credit can have a negative impact on your credit score. Every time you allow a potential lender to pull up your credit report, your score can take a small hit. Co-Signing a Loan When you co-sign for a loan that dept becomes your debt and shows up on your credit report. Potential lenders look at that debt as yours because you are ultimately responsible for it.  If the person you co-signed for stops paying, pays late, or misses payments, your credit report can be negatively impacted. Making Minimum Payments Lenders who view your credit report don't like to see that you are paying just the minimum payment. If you consistently pay the minimum payment due, it could indicate financial stress or confirm that you are unable to pay off the full balance.  





Posted by Mary-Lou McDonough on 8/8/2016

Your credit score impacts many of your important life decisions. From your ability to open new credit cards, to taking out loans for cars and houses, your credit will be checked by many companies throughout your life. Credit scores are mostly a mystery to the people who have them. Sure, you can check your credit score for free online, but when it comes to understanding your score, most consumers are in the dark. In a perfect world, we would be taught in high school and college exactly what goes into your credit score, how to build credit, and how to avoid credit missteps. Unfortunately, we don't live in that world and many of us don't find out what makes up a credit score until we're in debt from student loans or credit cards. In this article,  we'll teach you what a credit score is, what it consists of, and how it is affected by your financial decisions. And, we'll do it in an easy-to-understand way that skips all of the jargon and acronyms that are used by banks and lenders. Read on to learn everything you need to know about your credit score.

What is a credit score?

Simply put, your credit score tells lenders how safe it is to lend money to you, i.e., the likeliness of you paying back your debt to them. In the United States, credit scores are awarded by three major companies. Since they use slightly different methods of scoring your credit, your score can vary slightly between them. What they all have in common, however, is that they put together your score based on your financial history (or lack thereof). How do they come about your score?

Parts of a credit score

Think of an Olympic diver who just took a perfect dive. The judges off to the side are going to score her on a few different factors: her approach, her flight, and her entry into the water. They'll award her a number based on her dive and then those numbers are averaged to give her a score. Credit is scored in a similar way. You aren't judged just based on your payments or just based on how long you've had a credit card. Rather, you're judged based on a combination of five main things. For your FICO score (the score used by the majority of banks and lenders) those are:
  • 35% - payment history
  • 30% - current debt
  • 15% - how long you've had credit
  • 10% - types of credit
  • 10% - new credit
As you can see, the most important factors that make up your credit score revolve around how much you owe and if you pay your bills on time. Having high amounts of debt or credit cards that are maxed out (meaning you hit the spending limit), your score can be lowered. Similarly, your score can be lowered every time you miss a bill payment. However, if you do miss a payment and your score is lowered, it can be recovered by making on-time payments. Your credit score is also influenced by the length of your credit history (15%): when you opened your first credit card or took out your first loan. The longer you've been making on-time payments the better. The last two factors that make up your score are the types of credit you have (10%) and new credit (10%). Having many different types of credit (home loan, credit card, student loan, auto loan, etc.) will improve your score so long as you're making on-time payments. However, opening up new credit rapidly is a red flag for lenders that you might be in financial trouble, hurting your score.    




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Posted by Mary-Lou McDonough on 7/27/2015

When you are looking to buy a home or refinance it is important that your credit is in tip-top shape. It is often a credit score that gets in the way of a home buyer and their dream home. Credit today means everything as far as your purchasing power. So if you want to be ready when opportunity knocks read on for some for smart ideas on how to keep your credit score going up.

1. Use your credit cards.

This may sound funny but it is important to have credit over having no credit. Paying in cash and over using credit cards isn’t always a good move for your credit score. Cards that are seldom used are often shut down or closed by the credit card companies. Because 30 percent of your credit score is based on your debt-to-credit-limit ratio you will want to have a high your total available credit. Having one account closed increases that ratio of available credit to debt and thus lowers your credit score.

2. Pay off your credit cards.

It may seem to make sense to pay off the highest-interest card first and save the most money in the end. But your credit score will get a bigger boost from knocking off the lowest-balance card. Instead of spreading your monthly payments equally among credit cards, pay down the lowest-balance card first and pay minimum balances on the rest. As you pay off each card, apply the money you would have paid on it to the next-lowest-balance card.

3. Don’t close cards once they are paid off.

The length of time you’ve had credit determines fifteen percent of your score. By closing your oldest account, you can shorten the length of your credit history causing a big hit to your score.

4. Keep the balance low

Much of your credit score is determined by your debt-to-credit-limit ratio on individual accounts. Maxing out one card raises your debt-to-credit-limit ratio and your credit score. So be sure to keep balances as low as possible. Try to target no more than 30 percent of your credit limit.

5. Stay away from retail-card accounts.

These are a big no-no. Retail store cards often have lower limits and higher interest rates. So running up balances on low-limit store cards affects your credit score more negatively than does using one or two bank cards. So in the long run the fifteen percent you were going to save on the one purchase will probably cost you more in the end.  





Posted by Mary-Lou McDonough on 5/18/2015

Did you know your credit score is always changing? Your credit score could be one number on one day and a different figure the next and even vary from one credit reporting agency to the next. Your credit score also known as your FICO score is based on the information contained in your credit record. Since your credit file is always changing so is your score. Your credit record changes every time a company you have credit with reports an on-time payment — or more important, a missed payment that's now more than 30 days late. Your score changes each time your credit card balance changes or you apply for new credit. There are three main credit reporting agencies; Experian, TransUnion and Equifax. Another factor that could affect your score is that not all lenders report to all agencies. To know your credit score you can pull a free credit report from all three agencies once a year. Look for missing or incorrect information. It is important to get that resolved as soon a possible. Click here for more information on obtaining a free credit report.