Right up there with your blood pressure, cholesterol and Social Security number, your credit score is one of the more vital numbers in your life. Some scores are healthier than others. Have your finger on the pulse of your credit; a poor score will keep you from qualifying for a mortgage or you’ll pay thousands of dollars more in interest.
1-2-3’s of Credit Scores.
Credit bureaus collect and track every time you pay a monthly bill or apply for a line of credit. A mathematical formula is then applied to this financial track record. The result? A three-digit number generally ranging from 300 to 900. Unlike many health indicators, the higher the number, the better. A good score is typically above 660.
Thirty-five percent of your score is based off of your payment history. Do you pay your bills on time? Has a collection agency tracked you down? Have you declared bankruptcy?
Another 30 percent of your score comes from the amount of debt. Have you maxed out your credit cards? A good rule of thumb is to use less than half of your available credit (a quarter of your available credit is ideal).
Think of the balance of your credit score coming from three different buckets — the amount of time you’ve had credit, the different types of credit in your report and any new credit.
The longer your credit history, the better the “mix” of credit (i.e. cards, loans) and the fewer examples of “new” credit, the higher your score will be.
Why Your Mortgage Lender Cares.
Because the credit score reflects a borrower’s history of paying bills on time and responsible use of credit, a borrower with a higher score has a better chance of consistently paying off the mortgage. Some lenders base loan interest rate on your credit score, giving higher rates to less creditworthy applicants. Which means if you have been using your credit wisely, you’ll also be rewarded with a lower interest rate than your less creditworthy counterpart.
It pays to keep your credit score healthy.
If you’re ready to purchase a home, build, or refinance your existing mortgage, talk to one of our friendly loan officers at 402.885.6900 to start the process today.
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