Understanding Mortgage Credit Scores

Your credit report is separate from your credit score, even though your score is based on your report. In addition to viewing credit reports from the three major reporting bureaus, you also should obtain your FICO score.

Credit Checklist

• Payment history — Do you pay your bills on time?
• Amounts owed — What is your overall debt?
• Length of credit history — How long have you been borrowing money? Lenders like it if you have a long credit history
• New credit — Have you applied for any new credit?
• Types of credit used —  Bank cards, car loans, student loans, etc.

What’s a Good Score?

The FICO scores range from 350 to 850; an 850 is the best and 723 is the average score in America.  You can expect good mortgage interest rates at the 720 to 760 level and up.

If you notice you are receiving a lot of zero percent credit card or lines of credit offers, your credit is probably in a good shape.

Homebuyers who pursue an FHA loan, one of the most common loan types for first-time purchasers, can usually secure a loan if their credit is 620 or over.

Free Reports

Your credit report is easy to get. Consumers can access one free credit report per year from each of the three reporting bureaus: Equifax, Experian, and TransUnion. The online report is generated after you answer a series of security questions and only takes about 10 minutes to complete.

Each FICO score costs approximately $15, but, this may save you thousands over the life of your mortgage if you end up with a lower interest rate.

Insurance

How do you know what a good score is and what a bad score is?

It’s a little bit tricky since different scores are calculated in different ways. Scores may range from around 300 to 900 with the average credit score in America being at about 740. Here is an approximate range of how credit scores are judged:
Excellent credit = 720 and above

Good credit = 660 to 719

Fair credit = 620 to 659

Poor/bad credit = 619 and below

How Credit Reports Affect Your Mortgage

Before you start house hunting and getting pre-approved for a home loan, check your credit report and get your FICO scores. Why? Your credit rating may be the single most important piece of financial information you have to obtain a mortgage at the best interest rate.

Checking your credit rating before you purchase will give you time to correct any errors and to clean up your ratings.

What’s in a Credit Report?

Credit reports are a history of your track record of borrowing and repaying banks, credit card companies, and any other lenders. When you apply to borrow money, the lender uses the credit report to decide if you are a safe bet, or a risk. They also base whatever interest rate they offer on that report and your score.

A credit report includes:

• Credit history. This includes account information detail, such as your payment history, and specifically information about accounts that may have been sent to debt collection agencies. It also includes the number of accounts you have and the type of each, and if you are in good standing with each.
• Who is examining your credit. Any inquiries by lenders or others about your credit is recorded as well.
• Any judgments against you, such as bankruptcy.
• Personal information about you, such as your addresses. Social Security number and your previous employers.

How to Request a Report

There are three major credit-reporting agencies: Equifax, TransUnion, and Experian. You can receive a free copy of your credit report once a year from AnnualCreditReport.com, which gets the reports from each of the three companies.

5 Habits That Can Ruin Your Credit

Habits are those activities we do unconsciously because we’ve done them so many times before. We’re not even fully aware when we’re doing them, and then the results tend to pile up unseen.

Of course, credit is one of those things that can suffer from bad habits. So let’s take a look at five bad habits that can ruin your credit:

1. Charging Everything to Your Credit Card

It’s easy to break out the card and charge everything. After all, why would you drive all the way to an ATM Machine or a bank, when you can just simply take out your card. But paying for everything with your credit card is a way to run up the charges without realizing it, and your monthly statement bill will be a shock. If you want to take advantage of credit card rewards by charging everything, make sure you check your accounts frequently so your statement doesn’t catch you off-guard.

2. Buying Discounted Items You Don’t Need

We’re hardwired to love a deal and we sometimes buy discounted items because we might need them in the future. But just because something is “on sale” doesn’t mean you should buy it. The important thing to remember is “Can you pay it off on time?” If you don’t, any credit card interest you owe on the outstanding amount will invariably erase any discount you had.

3. Dealing With Bills Later

When you get a bill in the mail, deal with it right away. Once you receive it, pay it immediately. But this only works if you’ve set a budget and know when your bills come in. Often what happens is, bills flow in, they get stuffed into one huge pile, and then you have to sort through your bills to figure out what happened that month and how you’re going to pay them all. And if you’re not careful, you might end up dealing with those bills after their due date, which has one of the biggest negative impacts on your credit.

4. Applying for Credit Whenever you Get a Chance

Whenever you apply for any credit card offer, your score is affected with a hard inquiry. Too many inquiries can drive your credit score down. Instead, you should only apply when you need to or if you are trying to build up your credit.

5. Complacency

This is the worst habit of them all because not only is it hard to spot, but if you keep ignoring the risks and responsibilities you have, it will inevitably lead to a lower credit score. 

One of the best things you can do is start to identify some of your bad habits that are impacting your credit and start fixing them. For instance, keeping tabs on your credit is an important part of that process. You can check your credit score using a free tool like Credit.com’s Credit Report Card, which gives you your score plus a breakdown of the major components of your credit score (payment history, credit usage, length of credit history, mix of credit and new credit) to see what areas you need to work on. And it’s equally important to check your credit reports, which you can get for free every year.

Remember: Good credit habits lead to good credit history which leads to a positive impact on your credit score.

How to Increase and Manage Your Credit Score

Are among the thousands who have been devastated by the economic blight that has swept across America over the last 5 years and are now looking to improve your credit score?

Now before you sprint into the credit race, first take a step back and form a spending plan or budget based on your income and fixed living expenses. Late payments are the single-most common factor that hurts credit scores! Make sure all your credit card payments on time and try to automate regular monthly payments so you don’t miss any.

The ratio of credit you use to available credit is just as important as your on-time payment history. If unpaid balances are more than 30 – 35 % of your available credit, that can lower your credit rating. Try not to carry large revolving balances on credit card accounts.  Ideally, try to zero out the balance at the end of each payment period so you don’t pay interest or at least bring your balance below 50% of your credit limit.

Length of your credit history accounts for the next biggest piece of your Credit score. The longer you’ve held an account in good standing, the better that is for your credit score. To credit agencies, new accounts imply that you need credit. That lowers your credit rating over the short-term — for 12 months from the time you open a new account — as well as the average age of your credit card accounts. Keep existing credit card accounts open!

Because lenders like to see a mix of card accounts, rather than one or two large revolving general-use credit card accounts, keep a good mix of accounts, including general credit, store credit and loans.

Mixing it up

Credit rating agencies divided account types into three major categories:

1. Revolving accounts, which include all basic credit card accounts, both general and store cards along with home equity lines of credit.
2. Installment accounts, which include auto, mortgage, home equity and student loans.
3. Open accounts, which included home utility, internet, cable, and cell phone service accounts.

Remember that once you start using credit cards, you’re beginning the lifelong journey of compiling your credit score. Make sure you lay down a strong foundation: that way your “credit Score” will increase in value and stand the test of time.