If you are thinking about purchasing a home which many people are again now that people are getting jobs and the economy has picked up steam, one of the biggest portions of this is having credit to do so. The rate you pay depending on the type of loan can be affected by credit score.
Also the program you are eligible for can be determined on length of credit and pay history as well. Many times people do not realize how much credit affects them financially in terms of borrowing. At some point in our lives, almost all of us will need to borrow money or take out credit in some fashion.
The better you take care of your credit the better things will be for you.
More Credit Lines Do Not Always Better Credit
This does not mean take out all the credit you can(more about this in a moment). This means, be smart, be wise and utilize credit but do not over extend. When you do have credit, pay your bills on time. The amount you borrow against available revolving lines also will affect your score.
How Does My Balance Effect My Credit?
Typically keeping a balance of less than 30% of your max spending limit will positively impact your score. Once you start increasing over that, the score can be negatively impacted. for example, if you have a $1000 spending limit, you want to keep your balance below $300. This would be utilizing 30% of the limit or less.
When it comes to revolving credit which can have the quickest impact, please also note this does not give you the freedom to open every card from every store.
Each credit pull has impact and a bunch of little cards can add up fast and can get you into credit mismanagement. The best thing to do is have a couple major cards from the big companies, Mastercard, visa, etc.
Other Items that Hurt Your Credit Score
Another items which commonly affects score is judgments and collections. Recent collections can lower the score fast and by large amounts. I would advise, working with the creditors and work to get them paid and deleted. Get some special advice if your credit is recovering from a bankruptcy.
Many collectors will delete the collection if paid in full. (You will need to specifically ask for a delete though.) They often want the debt gone as badly as you want it off the credit report.
The Downside of Closing Credit Cards
For those of you who have established credit, avoid closing credit cards. Keeping the balance off or low is better than not having the ability to borrow. Closed accounts can have a negative impact.
If you think you are going to be purchasing a home in the next couple years, avoid financing the big ticket items unless you absolutely have to For example a car, not only do these large payments affect your debt to income ratio (topic for an upcoming blog), but they can lower your score on the short term, but mainly they can affect how much you qualify for due to the large monthly payment.
The Real Cost Of Low Credit Scores
Keep this in mind:
On a $165,000 30-year fixed-rate mortgage, that difference could cost you more than $13,378 in interest charges, assuming a 4.5 percent interest rate with a 700 credit score and a 4.875 percent rate on a 698 score. Just two simple points! Fall below a 680 and the rate goes up even more. You can do the math.
Please feel free to give us a call at 1-800-348-1160 if you would like to discuss your options for obtaining a mortgage, or contact us online. One of our experience mortgage professionals can guide you through the pre-approval and purchasing process.