There are many factors that cause changes in your credit score and lots of things you can do to improve your credit score pretty fast . As Home Loan Credit Score points out , very often your score can be brought up by merely addressing issues that you’ve overlooked or didn’t notice. That’s why it’s essential to address issues on your credit report annually, if not more often . By paying attention to , 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 stay away from many of the credit pitfalls and even work to improve your current credit situation.
You might be astonished 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 eliminate the cost of hundreds of dollars annually on your mortgage payment. If your mortgage payment is $1,080 at a 5.051% interest rate that same payment at a 4.829% interest rate would cost you about $1,050. That’s $360 a throughout the year , or $10,800 after all of your mortgage. If you better your credit score 100 points, those numbers more than double. The most surprising thing about this is that much of the time you can better your FICO score approximately 125 points in as little as than 2 months.
Considering that such a piffling lowering in your interest rate can lower your 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 need to address 5 pieces of your credit report.
35% of your credit score is associated 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 contested if it’s not accurate , but should be done with the direction of a Credit Score Professional.
30% of your FICO score is based onoutstanding debt. By keeping your debt under 50% you can increase your credit score. By keeping your balances below 25%, you are modeling responsibility that is the lowest risk to lenders and this can lead to significant improvement in your score.
15% of your score is based on the length of your credit history. Keeping accounts alive 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 addressed by keeping low the accounts you close and not transferring old account balances to new accounts.
10% is related to the type of credit you use. By having a bunch of different kinds of credit, having plenty of accounts that are installment loans, revolving accounts and mortgage loans you can contribute positively to your FICO score. It’s also important to avoid high risk “consumer finance institutes.” These types of accounts can lower your credit score because they’re seen as last resort creditors.
The final 10% is associated with new credit. This area relates to how long it’s been since you opened your newest account. Also having more than 4 inquiries on your credit history within a 6 month period can reduce your score.
To learn more about how you can increase your credit score and how to more wisely manage the different pieces of your credit, see Improving Your Credit Score, and Review Your Credit Report.
This article is written by Morgan Best.