Important Factors Effecting Your Credit

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In 2009, changes were made in the way credit scores are calculated. To make the most of your credit, you need to know exactly how your credit score is calculated. There are five components to your score and some carry more weight than others.

  1. Payment History – In the past this has been the largest factor in your credit score. This comprises 35% of your credit score.
  2. Amount Borrowed Compared to Available Credit – Now a bigger factor in your credit score. This comprises 30% of your credit score. It is better to owe a small amount on different cards than to have one card that is maxed out.
  3. Length of Credit History – Raise your credit score by keeping accounts open over 7 years. Your length credit history comprises about 15%. Instead of closing accounts, pay them off and leave them open with a small amount of activity that gets paid off each month.
  4. Inquiries and New Debt – These lower your credit score. These make up about 10% of your credit score. For house shopping, all mortgage inquiries within 30 days are grouped together as one inquiry. For auto loans, all inquires within 14 days are grouped together as one.
  5. Types of Debt – Installment debt is more favorable to your credit score than credit card debt. This comprises 10% of your credit score.

It may seem daunting to get a handle on your credit situation but there is help. Contact a Financial Education Service Agent to find out how to resolve the negative issues impacting your credit report.

 

Did You Know…

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Your credit score affects the rates on your mortgage

More today than ever before, our increasingly tight credit market demands a high credit score. Why? Over three quarters of all lenders use credit scores when approving loans or credit. It’s also used to determine your interest rate, the amount of your down payment and the variety of mortgage types available to you if you’re buying a house. The higher your credit score, the lower the interest rate. For larger loans, such as a mortgage, one point up or down in your score can add up to a significant amount of money.

The industry has changed over recent years as lending guidelines have become more restrictive making it harder to obtain loans.

FICO Score APR Monthly Payment Total Interest Paid Extra Interest Paid from 760-850 Credit Score
760-850 4.75% $1,043 $175,369 N/A
700-759 4.967% $1,070 $185,061 $9,692
680-699 5.144% $1,091 $192,873 $17,504
660-679 5.358% $1,118 $202,417 $27,047
640-659 5.788% $1,172 $221,912 $46,543
620-639 6.334% $1,242 $247,257 $71,888
* Based on a 30-year fixed mortgage of $200,000 according to May 2010 interest rates from myfico.com

What Lenders look for on Borrower’s Credit Report:

  • Outstanding debt
  • Outstanding debt relative to the total available debt
  • Length of credit history
  • The pursuit of new credit

Lenders Prefer Borrowers With:

  • Low balances on credit cards and loans
  • A long history of on-time payments
  • A mix of credit utilization (a couple credit cards, a car loan and a mortgage.

Getting a handle on your credit report and history is critical if you want to live free and have the kind of future you’ve dreamed and worked hard for. Let a Financial Education Service Agent help you improve your credit.

A Fresh Start with New Possibilities

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Ever wonder why your credit report has inaccurate information? Credit reports often contain errors due to one of the following reasons:

  • Loans or credit card information is applied to the wrong account. This is a frequent occurrence with fathers and sons if a “Senior” or “Junior” is omitted when filling out an application.
  • You may have unknowingly caused an error by filling out credit applications with different names. Here are two examples of frequent occurrences: 1. You may fill out a department store credit application as Bill Smith and a mortgage application as William R. Smith. 2. An applicant may apply for credit as Margaret Jones, Peggy Jones, or Margaret Conrad-Jones.
  • You entered your social security number incorrectly on the application.
  • A clerical error was made when the lender transferred the data from the application.
  • Payment data is applied to the wrong account by the credit bureau.

So how can you fix this and avoid costly errors? Contact an Financial Education Service agent to find out how.