There are several things that change your credit score and many ways to improve your credit score in a matter of weeks . As Home Loan Credit Score points out , very often your score can be brought up by simply addressing issues that you’ve overlooked or didn’t notice. That’s why it’s important to check your credit report fairly frequently . By making note of , and correcting problems like late payments, the amount of credit you have uncommitted, and the number of requests you have for new credit, you can avoid many of the credit pitfalls and even work to improve your existing credit situation.
You might be interested to realize just how much your FICO score actually affects 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 payout at a 4.829% interest rate would be about $1,050. That’s $360 a throughout the year , or $10,800 over the life of your mortgage. If you raise your credit score 100 points, those numbers more than double. The most unbelievable thing about this is that more often than not you can increase your FICO score up to 125 points in no more than 2 months.
Considering that such a piddling reduction in your interest rate can make such a significant difference in a mortgage payment, it’s well worth getting your FICO score improved if you are able before trying to get a mortgage. To do this, you would be wise to address 5 parts of your credit report.
35% of your credit score is dealing with your payment history. This area concerns any late payments you may have, bankruptcies, charge-offs or collections and can have some adverse affects on your credit score. Information in this area can be challenged if it’s not correct , but should be done with the guidance of a Credit Score Professional.
30% of your FICO score is based onoutstanding debt. By keeping your debt below 50% you can improve your credit score. By keeping your balances below 25%, you are modeling behavior that is desirable risk to lenders and this can lead to a much better score.
15% of your score is based on the length of your credit history. Keeping accounts open for as long as possible contributes positively to your credit score. Ideally, you want to have accounts that are open for longer than 7 years. This area can be improved by limiting the number of accounts you close and not moving old account balances to new accounts.
10% is related to the kind of credit you use. By keeping a nice array of different kinds of credit, having many accounts that are installment loans, revolving accounts and mortgage loans you can contribute positively to your FICO score. It’s also helpful 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 controlled 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 learn more about how you can improve your credit score and how to more wisely manage the different parts of your credit, read Improving Your Credit Score, and Review Your Credit Report.
This article is written by Morgan Best.
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