31Mar

#5 Your Credit Score

What's a Credit Score

In today’s society, most of us have heard the term “Your Credit Score”. We understand our “CREDIT SCORE” is an important factor in a lender’s decision to approve or deny our loan request.  “CREDIT SCORING” began in the 1950’s and has evolved a great deal since then.  In essence, credit scoring seeks to determine the likelihood of a borrower paying off the debt or loan without being more than 90 days late on any payments at any time in the future.

What is important to note for each of my clients is what parameters affect an individual’s credit score.  In addition, understanding that as a borrower your credit score affects the terms of your loan approval.  The higher your credit score the lower the interest rate you will be charged on all types of consumer loans (auto, credit card, mortgage, etc.).

Your goal is not simply to “get approved”. Your goal is to get approved at the “best terms”.

Below are a few points and mindsets regarding credit scores.  I share them in an effort to increase your awareness on the topic which in turn will assist you in increasing your credit score, lower you borrowing costs and save you money.

  • FICO is the credit score used by 90% of lenders in the United States.
  • FICO scores range from 300 – 850.
  • Some reports indicate only 1 in 1300 people have a credit score above 800.
  • While it is “possible” to secure a mortgage with a credit score as low as 500, the terms and interest rate charged will not be favorable to most consumers.  A minimum credit score of 720 – 740 will offer the best terms for consumers.
  • Other industries (notably, the insurance industry) now use their client’s credit scores in setting individual policy rates.  The higher your credit score, the lower your insurance rate.
  • Late payments or delinquencies have the greatest negative impact on your credit score.
  • Individual credit card balances greater than 30 – 35% of your available credit on that card will reduce your credit score.
  • Having a longer credit history on each of your credit lines improves your credit score.

 

I strongly recommend that each of my clients become more aware of their “CREDIT SCORE”.  Myfico.com is an excellent resource for increasing your credit score awareness.  Remaining proactive in this area will save you money.

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