Solid credit has always been essential when applying for a home mortgage. Today it’s even more critical as banks continue to tighten their requirements. A low credit score doesn’t mean you won’t qualify, but it does mean you won’t get the best rate. According to myfico.com, someone with a credit score of 720 may expect a rate of 3.7% on a 30-year fixed-rate mortgage while the same mortgage for someone with a score under 650 could result in a 5.2% rate. That translates to a payment hundreds of dollars higher each month. If you do have a few kinks in your credit, don’t despair, there are steps you can take to improve your score. The process may take a few months to a year so start working on it now.
Start by obtaining your free annual credit reports at www.annualcreditreport.com then identify what needs to be improved. There are great resources available to help you with this such as counseling courses through the Department of Housing and Urban Developement.
According to FICO, the primary factor in your credit score is your payment history which makes up 35 percent of the score. That is followed closely by the amount owed which comprises 30 percent of your total credit score. I was surprised to learn that paying off debt that is already in default won’t help your score as much as paying off debt in good standing. Late payments seem to be the credit kiss-of-death.
There are lots of little tips and tricks to give your credit score a few point boost. One being to register online at Optout.com. Among other things, registering with the site will eliminate pre-approved credit cards from filling your mailbox.
The bottom line is, keeping your credit score up will give you the best opportunity at attaining the most house for your money.
Kerry Ann Moore, The Keith Byrd Team, San Luis Obispo Realtor, 805-540-4040