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Monday, May 3, 2010

Home Loan Credit Score

There are plenty of issues that change your credit score and many ways to improve your credit score in a relatively short amount of time. As Home Loan Credit Score points out, very often your score can be improved by just addressing a few things that you’ve overlooked or didn’t notice. That’s why it’s vital to review your credit report regularly. By making note of, and learning more about topics like late payments, the amount of credit you have uncommitted, and the number of requests you have for new credit, you can circumvent many of the credit problems and even work to improve your current credit situation. You might be astonished to learn just how much your FICO score really has to do with the interest rate you get on your home loan. Just raising your FICO 50 points can keep you from having to pay hundreds of dollars a year on your mortgage payment. If your mortgage payment is $1,080 at a 5.051% interest rate that same expense at a 4.829% interest rate would cost you about $1,050. That’s $360 a annually, or $10,800 throughout the payment history of a 30 year mortgage. If you increase your credit score 100 points, those numbers more than double. The most exciting thing about this is that much of the time you can improve your FICO score about 125 points in no more than 2 months.

Considering that such a piffling lowering in your interest rate can drastically reduce your mortgage payment, it’s well worth getting your FICO score increased as much as you can before getting a mortgage. To do this, you need to address 5 parts of your credit report.

35% of your credit score is dealing with your payment history. This area aligns with any late payments you may have, bankruptcies, charge-offs or collections and can have some unwanted results on your credit score. Information in this area can be challenged if it’s not without error, but should be done with the direction of a Credit Score Professional.

30% of your FICO score is based on existing debt. By keeping your debt below 50% you can increase your credit score. By keeping your balances below 25%, you are demonstrating responsibility that is desirable risk to lenders and this can lead to a much higher score.

15% of your score is based on the length of your credit history. Keeping accounts open for as long as possible raises your credit score. Ideally, you should work to have accounts that are open for longer than 7 years. This area can be worked on by keeping low the accounts you close and not moving old account balances to new accounts.

10% is related to the type of credit you use. By managing a bunch of different kinds of credit, having several accounts that are installment loans, revolving accounts and mortgage loans you can contribute positively to your FICO score. It’s also worthwhile to avoid high risk “consumer finance institutes.” These types of accounts can reduce your credit score because they’re seen as last resort creditors.

The final 10% is determined by new credit. This area relates to the length of time it’s been since you opened your most recent account. Also having more than 4 inquiries on your credit history within a 6 month period can seriously affect your score.

To find out more about how you can improve your credit score and how to more wisely manage the different area of your credit, look into Improving Your Credit Score, and Review Your Credit Report.

This article is written by Morgan Best.

Thanks again,
Tim!

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