How does credit work?

We're here to help you move up to the next level, so you can get the options you want in life. Let's go over the six factors that go into your credit report. 

1. On time payments - This is your history and reputation for paying bills on time. It has the most impact on your score. 

2. Credit Usage - This is how much of your credit card limits you are using. It has a big impact on your score. If all your credit cards are close to or maxed out, it can lower your credit score significantly. 

3. The average age of credit - This is the average age of all your open credit cards and loans. The longer your accounts have been open, the better. 

4. Total accounts - The more credit cards and loans you've had, the more lenders trust you. Before opening up more accounts, talk to a lender to discuss your best credit solutions. 

5. Credit inquiries - A "hard" inquiry is when a lender checks your credit report. Checking with Credit Karma, Mint, or Credit Sesame doesn't count. 

6. Derogatory marks - You'll get a negative remark on your report if one of your accounts shows a late payment, goes into collections or bankruptcy. 


Why is this important?

Your FICO score is the first thing a mortgage lender will check to see if you qualify for a loan. While there are many factors involved in qualifying for a loan, your credit score is the most important. The minimum credit score you need to purchase a home will depend on the type of home loan you qualify for.

Your credit score will affect the interest rate you get. Poor credit scores often lead to higher mortgage rates and increased closing costs leading to a higher monthly payment. Obviously, the higher your credit score the lower your rate will be.

579 and lower – If you are approved for a mortgage with this low of a score you will have  as much as 2% higher than the current lowest rate. In the long run, it may be cheaper to raise your credit score first before taking out a loan for a home. 

580-619 – You can expect an interest rate as much as 1% higher than the lowest rates available.

620-679 – With a credit score in this range your interest rate will be slightly affected. Rates could be .5% higher than someone with great credit will receive.

680-739 – This is the range most homebuyers are at, your rate will not be affected much at all in this range.

740 and higher – You will be offered the best rates mortgage companies have to offer.

How can I increase my credit score so I can get a home loan?

To improve your credit score quickly you can pay the balances on your credit cards as low as possible. The lower your credit card balances are, the higher your credit score will be.

Contact us to discuss your options and get hooked up with a credit specialist!