Credit Scores : what they are & how to change for the better
By Jayson Stebbins Mortgage Professional
Jayson Stebbins is a 22 year veteran of the Mortgage Banking industry and an Accredited Mortgage Professional through the Mortgage Bankers Association . He grew up in Morgan Hill and currently lives in Gilroy . He is the local Branch Manager of Guild Mortgage , a 55 year old Mortgage Banking firm . His office is in Morgan Hill and serves all of Santa Clara , San Benito , and Monterey counties . You can reach Jayson and his Team at 408-782-8800 or at stebbinsmortgageteam . com
So much of our financial life can be influenced for good or bad by our credit score . What makes up that mythical number ? What are the components of the “ black box ” that generates our score ?
A credit score is a statistical model calculated from the information in the credit report as reported by the three credit agencies ( Equifax , Experian , and TransUnion ). There are five categories of factors which make up the score . Each category is weighted by importance and how it impacts the score :
PAYMENT HISTORY – 35 % This includes late payments , collections , bankruptcies , past dues , and tax liens
AMOUNTS OWED – 30 % Outstanding debts / balances on accounts – try to keep them at 40 % of the max credit limit
LENGTH OF CREDIT HISTORY – 15 % NEW CREDIT – 10 %
TYPES OF CREDIT USED – 10 % Factors in credit inquiries and applications for new credit
The higher the score the better . Anything over 740 is considered excellent ; anything over 680 being good . Approximately 70 % of people have scores of 650 or better ; the lower the score the more difficult you may find it to secure credit . Mortgage loans are typically more difficult for someone if the score drops below 620 .
When we are trying to qualify for a home loan , or secure any type of credit , the score has become not only a factor in determining what type of loan we can get , but also how our interest rates are priced .
Here are some things we can do to help boost your scores and make your overall credit profile stronger :
• Keep your credit balances at 40 % of the overall credit limit
• Consider opening a small revolving account to increase your available credit , but don ’ t use it .
• Use tools such as annualcreditreport . com to monitor your report and make sure it is correct .
If you do find errors , work with your Mortgage Professional to help you “ rapid rescore ” your report . National credit vendor Informative Research estimates 5 % - 10 % of all reports contain errors worthy of attention .
That is a simple summary of things you should do . But what about the “ don ’ t do ” list ?
• Don ’ t shift balances from one card to another . The ratio that matters is total credit usage to total credit available .
• Don ’ t close accounts . That will decrease the total credit available .
• Don ’ t open a lot of new accounts in a short period of time – multiple , recent credit applications of different types will lower your score .
• Don ’ t file bankruptcy in hopes your credit issues will disappear .
• Don ’ t fall for companies or credit counselors who claim they can “ erase your debt ” or fix your credit simply by filing disputes
As the lending environment gets more focused on Risk Based Pricing it will be more and more common that the higher the credit score the better the rate . As our credit score goes down , our risk in the eyes of lenders goes up , and pricing on our mortgage can be affected .
If your report seems intimidating , or you feel overwhelmed , it is important you know that most Mortgage Lenders work with people every day who have less than perfect credit . It is not hard to diagnose , treat , and over time even cure credit issues from the past .
REMEMBER : Pay on time , don ’ t over extend , and use credit wisely . That will be a lesson that will pay off in the long run .
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GILROY • MORGAN HILL • SAN MARTIN SEPTEMBER / OCTOBER 2015 gmhtoday . com