The Things That Affect Your Credit Score

Been out looking at homes lately? Thinking that it might be time for you to make the leap? Stop renting, set down some roots, and grow your family? Those are all great ideas, if you ask us. (First, because we hate to see people waste money on rent when they can invest in themselves. Second – because we think Las Vegas is awesome. And third, because we love kids and animals. But, we digress.)

As we mentioned in our last post, going into the home-buying process with a good Credit Score is truly important. Why? Because as we explained, it will help you get a better interest rate, allow you to pay fewer fees, and it will give you more loan options.

Of course, it’s easy for us to say that – but credit can be a complicated thing. (That’s probably why there are books, magazines, websites, and experts out there that make that make explaining how credit works their sole purpose in life.)

There are, however, some basics to keep in mind when you’re trying to improve your own credit history that apply to everyone across the board. So we’re going to try to take a little bit of the “mystery” out of credit! Maybe then you can have a better idea of how to evaluate your own. Then you can make decisions that will help increase your “borrow-ability” (hey look! a new word!) when it’s time for you to make an offer on that house you absolutely love – then apply for your mortgage loan, confident it will make your dream of homeownership come true. Ready?

Not Paying as Agreed. (35% of Credit Score) The first red flag for a lender will focus on any late payments, charged-off accounts, bankruptcies, liens, judgment and other derogatory items on your Credit Report. However, since life isn’t necessarily black-and-white, there may be extenuating circumstances that caused these things to show up on your Credit Report. (An all-too-common and unfortunate one can be identity theft. Another may be an illness with extensive medical bills, or perhaps the millions of people adversely affected by the economic crisis.) Many people aren’t aware that mortgage lenders will consider some of these circumstances when evaluating your loan application. So remember that just because those things are on your report, if there’s a good reason and explanation for them, you may still be able to qualify for a loan.

Poor Credit Management. (30% of Credit Score) Are your credit cards maxed-out to their limit? That’s going to have a big effect on your Credit Score. It’s not that just owing money on your credit accounts makes you a higher credit risk, though. What lowers your score is having high balances, and having balances on several accounts. It’s a sign you may have spread yourself too thin. Start working toward paying those balances down, pay off the ones you can, and before long – you’ll see that score begin to rise.

The Length of Your Credit History. (15% of Credit Score) There’s no hard and fast rule for how long a credit history is required to get a mortgage loan. But as a guide, keep in mind that lenders like to see several months of a good payment history. If you have zero credit history as you read this, then now is the time to start building one. Here are some tips on how to get that ball rolling.

The Type of Credit You Have. (10% of Credit Score) One thing that can help improve your Credit Score is having a variety of credit types on your report. These can be credit cards, store cards and installment loans or credit. So, for example, an auto loan and a few credit cards would be a better credit mix than having only credit cards on your report. Just remember that while having a mix of credit can help, you shouldn’t take out any credit you won’t use. Because…..

New Credit. (10% of Credit Score) Opening multiple new lines of credit too quickly can create a drop in your credit score. (So that part about not taking out credit you don’t need – this is why.) The exception to this is if you’re shopping around for the best credit or loan terms. Multiple credit inquiries over a short period of time will be grouped together as one inquiry – so they won’t “ding” your credit each time one comes through.

Two other things to keep in mind when it comes to your credit – that can both have a tremendous impact on your creditworthiness – are these:

• Errors on your Credit Report. It’s estimated that 1 in 5 Americans have at least one error on their credit report. That’s a huge number – so it bears saying you should review yours with a fine-tooth comb to see if yours is one of them. The good news is that today, it’s possible to submit a dispute for incorrect information online directly to the credit agency reporting the mistake. Although as this creditcards.com blog explains, sometimes better results are achieved through the USPS regular mail.
• Are You Buying Your Home with a Spouse? Remember that both of your credit histories will play a role in your mortgage loan application. That means – don’t review only your own report – get your partner to review theirs, too!

Now you’ve got your homework assignment. It’s time to dig in and take the steps to raise your credit score as high as possible! That one number will help you save money in more places than you can imagine – and not only on your mortgage loan rates.

New Home Resource helps current and future homeowners with all of their Las Vegas real estate needs. Whether your preference is for property management, a newly built home from a local builder, or a resale property in just the right location, a New Home Resource Realtor® is here to provide just the service you’re looking for. Please contact a New Home Resource Realtor® today at 702-365-1000 or at www.newhomeresource.com. Broker Joanna Piette, and agents Denise Moreno Thrasher, Jessica O’Brien, Evelyn ‘Beng’ Kern, and Kathy Paterniti are all here to help!