If You Want To Win The Credit Game,

You Have To Keep A High Score. Here's How.

What would you say if we could help you save a little over $81? Let's do better than that. What would you say if we could help you save a little over $81 each and every month you owned your home? And, for the next 30 years! That's a savings of more than $29,260. You know what? WE CAN!

In the above realistic example, we're talking about a savings of a little more than $81 on a $250,000 loan for 30 years just because your good credit score allows you a break of just 1/2% lower on the interest rate. By the way, this relates to refinancing to a lower rate also.

Whether you are planning to purchase your first home or moving up in the market, we'll show you how to access your credit score, explain what the score is, how lenders use it and what factors affect it so you can win the credit game. We'll also give you some ideas and resources for improving your score. Take notice because credit scores certainly can influence a buyer's mortgage rate and even ability to qualify for a mortgage.

What Is a Credit Score?

A credit score is a numerical rating that attempts to measure a borrower's credit worthiness; the likelyhood that one will be more than 30 days past due on a promised payment. A high credit score does not guarantee that a loan applicant will never default on a mortgage; however, that person represents a statistically smaller risk than a person with a low score. Lenders, therefore, are more likely to approve loans and offer their most favorable terms to people with the highest scores. Credit scoring to rate mortgage applicants has been used extensively now for about ten years and it is here to stay.

Fair, Isaac & Co. furnishes the most commonly used rating: the FICO score. Though all three major credit bureaus—Equifax, Experian, and TransUnion—provide scores to creditors, an individual's score may differ from one bureau to another. That's because the score is developed only from the credit information on file at each particular bureau, and that information may vary from one to the next. Once a secret shared between credit reporting agencies and lenders, the scores are now out there for all of us to see. Anyone can take a look at their FICO score.

Scores are determined by weighing several factors in a person's credit record, including payment history, balances, number and types of credit accounts. By using a formula, results can be more objective than humans relying on different criteria to create a measurement. Credit scores do not consider a borrower's race, gender, religion, age, income, marital status, or national origin. But mathematical formulas have limitations. For example, a person who has always paid cash for purchases will score low due to a lack of credit history. Many lenders, therefore, do not rely exclusively on a credit score and will take other factors into account that may mitigate a poor credit score.

What Factors Go Into The Credit Score Formula?

Though the breakdowns can change depending on an individual's history, generally, 35% of a FICO score is derived from a consumer's payment history. That is, do you pay credit cards, mortgage, and car loan payments on time, and is your history free from bankruptcies, foreclosures, wage attachments, liens, etc.? As you might imagine, the more recent and larger a negative item, the farther it drags your score down. The last 6 to 18 months is the most critical for scoring purposes. Also, the more instances you have of a problem, the lower your score will be.

Amounts owed makes up another 30% of FICO scores. The total amount owed, whether you are close to being "maxed out" on credit cards, how many accounts you have, and what balances remain on installment loans all come into play in this area. A small balance on a credit card with on time payments may be better than carrying no balance at all. You need transactions on your credit cards to generate a score, just be prudent about it.

About 15% of the score comes from the length of your credit history, including how long specific accounts have been established and the length of time since you used specific accounts. Another 10% of the score is determined by how many new accounts and requests for credit you have. The overall makeup of your credit determines the final 10% of your credit score. Stay away from department store credit cards! I'm convinced that just having an open account lowers your score.

What Is a Good Score?

Credit scores range from about 350-900. The lower the score, the higher the credit risk. While no industry standard exists for making decisions based on scores, I can tell you most lenders will look favorably on a score from 680 on up. Approximately 60% of U.S. consumers have FICO scores higher than 700. While your credit score may have a direct effect on the interest rate you get and the loan costs paid, remember that other factors go into the lender's decision to approve your loan. These include: type of property securing the loan, the borrower's equity in the propert, and the loan program.

How to Improve Your Score

There is no way to accurately predict how paying off your car loan or closing a credit card account will impact your credit rating. If there was a secret formula that revealed that, once it got out in the public everybody would follow it and credit scoring would lose its value. Credit scoring formulas want you to be, well, you. That's what makes them effective. Everybody's repayment habits fall into only 3 or 4 categories. This is what makes the scoring models.

Having said that, there are steps you can take to improve your scores:

Make Timely Payments -- this is always step number one, start NOW if you haven't
Don't Have Too Much Credit -- even if you pay on time now, you're asking for possible trouble later
Turn Down Unnecessarily High Credit Limits -- lenders consider your credit limits to your income Spread Your Balances Out -- it's better to have low balances on a few cards than 1 card at its limit
Do Establish Credit -- you need 3 credit accounts to maintain a high score; car loans, credit cards,etc
Don't Have Too Many Inquiries Too Fast -- too many inquiries in a short period (1 month) hurt you

We've given you some good insight to credit scoring on this page. As an experienced mortgage broker, we can tell you that your credit is more important than your money when it comes to securing a home loan. With good credit you are in the driver's seat and can get just about any home loan you want. With credit challenges, lenders are going to want you to share in their risk by offering a higher interest rate. Build up and then maintain your good credit scores. As demonstated at the top of this page, good credit doesn't pay, it saves—a lot!

We'll be more than glad to assist you with your credit questions. If you would like to go over your credit report, or order your report quickly, just give us a call.

Click here to learn how to correct mistakes on your credit report and how federal laws protect you. If you think you may be a victim of identity theft, click here.

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