There are plenty of issues that affect your credit score and lots of things you can do to improve your credit score in a relatively short amount of time. As Home Loan Credit Score notes, very often your score can be raised by just addressing some items that you’ve overlooked or didn’t notice. That’s why it’s vital to review your credit report at least once a year, if not more often. By making note of, and correcting problems like late payments, the amount of credit you have available, and the number of requests you have for new credit, you can avoid many of the credit obstacles and even work to improve your recent credit situation.
You might be surprised to find out 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 annually 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 be about $1,050. That’s $360 a annually, or $10,800 after all of your mortgage. If you raise your credit score 100 points, those numbers more than double. The most interesting thing about this is that much of the time you can better your FICO score approximately 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 as high as possible before trying to get a mortgage. To do this, you should address 5 areas of your credit report.
35% of your credit score is dealing with your payment history. This area is related to any late payments you may have, bankruptcies, charge-offs or collections and can have some unwanted results on your credit score. Information in this area can be challenged if it’s not accurate, but should be done with the guidance of a Credit Score Professional.
30% of your FICO score is based on outstanding debt. By keeping your debt at no more than 50% you can increase your credit score. By keeping your balances below 25%, you are displaying behavior that is the lowest risk to lenders and this can lead to significant improvement in your score.
15% of your score is based on the length of your credit history. Keeping accounts in existence for as long as possible raises your credit score. Ideally, you want to have accounts that are open for longer than 7 years. This area can be improved by limiting the number of accounts you close and not moving old account balances to new accounts.
10% is related to the kind of credit you use. By managing several different types of credit, having many accounts that are installment loans, revolving accounts and mortgage loans you can contribute positively to your FICO score. It’s also important to avoid high risk “consumer finance institutes.” These types of accounts can lower your credit score because they’re viewed as last resort creditors.
The final 10% is concerned with new credit. This area lends itself to how long it’s been since you opened your most recent account. Also having more than 4 inquiries on your credit history within a 6 month period can have an adverse affect on your score.
To learn more about how you can increase 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.
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