Credit Scores and Credit for Beginners
As a mortgage lender I have the unique opportunity of
getting to know a variety of people.
They, just like you, have a story to tell. In the world of finance, that story often
begins and ends with a number. That one number that can make all the
difference in whether you’re able to buy your dream home.
You might be wondering just where does this mythical score
come from. In mortgage lending, we typically
pull your credit report from all three credit bureaus (Equifax, Experian, and
TransUnion). The high and low scores are
thrown out and we use the middle score as YOUR credit score. If for some reason you only have two scores,
we use the lower of the two scores.
Interesting fact*:
the average credit score in the US is 695.
The average credit score of a millennial (someone aged 19 to 34) is 625.
But, there is something you should know about credit
scores. There is more than just
one. There are more than three. In fact, there are many, many types of scores
and variations on each score. Credit
scores, sometimes referred to as your FICOTM score or BeaconTM
score --- think of these as proprietary names like Xerox is to a copier or iPad
is to a tablet, can be tailored to the type of loan you are trying to
obtain. There are scores that indicate
whether you are more likely to pay your mortgage loan back and scores that
indicate whether you are more likely to pay your car loan back. You’ve probably guessed that these scores are
not the same and that a mortgage lender is going to pull a score tailored to
knowing if you are likely to pay back a mortgage loan and a person considering
giving you a loan a loan on a bright, shiny new car is going to pull a credit
score that tells them if you are likely to pay back a car loan.
According to Gerri Detweiler of Nav, “Whether you pay bills
on time is the single most important factor that makes up your personal credit
scores.” (you can find her on Twitter @gerridetweiler or @navSMB and online at www.nav.com) Gerri goes on to say that how late you
are matters too. On your personal credit
a few days late is not likely to impact your score, but going 30, 60, 90 or
120+ days late will have an impact. The
later you are = the greater the negative impact to your credit score. In
addition, your credit score is going to take into account how often you were
late and were those late payments recent.
So one payment made 31 days late two years ago is not the same thing as
6 payments made 62 days late last month.
Another factor that affects your credit score are the types
of accounts that you have. Do you have installment accounts – the kind of
accounts where you borrow a set amount of money and pay it back in equal
monthly payments? An example of an
installment account would be a car loan (and, yes, a mortgage loan is an
installment loan). Do you have
revolving accounts? These are accounts
where you have a maximum limit that you borrower, but you may not borrower it
all at the same time and, as you pay it back, you can borrower it over and over
again. Examples of revolving accounts
would be credit cards and department store charge cards. There are often
minimum payments associated with revolving accounts or you can pay them in full
each month.
With revolving debt, you also need to keep an eye on your credit
utilization. This is a fancy term for
how much of what you are allowed to borrower have your borrowed. HINT: the
lower the percentage the better! If your
credit cards have a maximum limit of $10,000 and you have used $9,000 then you
are at 90% credit utilization. This is
NOT good. If you have used only $1,000, you have 10% utilization and this will be
much better for your credit score. While
there is no magic number for credit utilization percentage (getting the formula
for credit scores is akin to getting the secret formula for Coke), myFICO.com gives examples showing 50% so
I definitely would not go over that percentage and I would stay as low as I
could. Like kids playing a game of
limbo, “how low can you go?” would be my motto on credit utilization.
In addition, the number of accounts you have, the length of
time you have had those accounts, and the number of inquiries – how many times
people have taken a peek at your credit report – have an effect on your credit
score.
Ungenita Prevost from PoshonPennies reminds us that we
should be wary of “Sexually Transmitted Debt”.
(you can reach Ungenita on Twitter @UngenitaPrevost or @PoshOnPennies or
online www.poshonpennies.com ) If
the term alone isn’t enough to scare you, let me explain. Someone else’s debt can have an impact on
YOUR credit score. Usually this someone
is a significant other, hence the aforementioned coined term, but it could also
be someone for which you have co-signed a loan. There is a lot more on this
topic – think about your business, your business partners, and your ex-business
partners; stay tuned, we will come back to this in another blog post.
No one wants to lose the home of their dreams over their
credit score; or have that home cost them more money --- everything from
interest rates to insurance premiums to mortgage insurance can cost more if you
have a lower credit score. So, I will
leave you with these top tips:
·
Pay your bills on time
·
Have a variety of types of credit
·
Have a long history of credit (24 months is very
advantageous, but you need at least 12 months)
·
Keep your credit utilization percentage low
·
Payoff any collections or judgments
As I mentioned before, there is more to cover on credit and
we will do just that in another blog post. Join us there or, if you have a
burning question, you can reach me on Twitter (@TheGlickTeam), email EGlick@StarkeyMtg.com, at the office at
912.721.9408, and my website at www.TheGlickTeam.com
.
As always, if you liked this article please like, share, or
comment…….or all of these things; they are greatly appreciated.
Eric Glick, Senior Loan Officer and Office Manager
NMLSR#544398, GA LIC#32997
Georgia Residential Mortgage Licensee
www.TheGlickTeam.com
6600 Abercorn St #105, Savannah, GA 31405 NMLSR#544398, GA
Lic#32997
EQUAL HOUSING LENDER
WR Starkey Mortgage, LLP, 6101 W. Plano Parkway, Plano, TX
75093 (NMLS#2146) 1-866-599-5510 Copyright©2016 All Rights Reserved. This is
not an offer to enter into an agreement. Not all customers will qualify. Information, rates, and programs are subject
to change without prior notice. All
products are subject to credit and property approval. Not all products are
available in all states or for all dollar amounts. Other restrictions and limitations may apply. WR Starkey Mortgage, LLP is required to
disclose the following information: Georgia Residential Mortgage Lender
Licensee No. 19715, Florida Mortgage Lender License #MLD1043, North Carolina
Mortgage Lender License No L-112550, South Carolina Mortgage Lender License No.
2146, NMLS ID# 2146 (www.nmlsconsumeraccess.org)
Sources:
