Mortgage Best Rate

Do you know your credit scores?  Most people don’t realize how important credit scores have become in today’s home buying process.  Your credit scores literally control how much home you can afford if you need any type of financing to make the purchase.  If you take two identical people with identical jobs and incomes who both buy the very same homes on the same street for the same price, but one person has a credit score of 720 while the other has a credit score of 620, guess what happens to the payments… they would be very different. The person with the higher credit score would likely have a smaller mortgage payment than the person with the lower credit score. In fact, the payment could be hundreds of dollars less!

In general people would bad credit scores end up paying a lot more for their loans including the interest charges and closing costs. This means they get a lot less house for their money and in many cases they may not even qualify to buy a home.

OK, so you got my point that credit scores are important. Very important. How does one get a credit score and keep it high?  There are companies out there that look at your payment records on credit cards, car loans, and home loans among other things. You may have heard of companies such as Experian, Equifax, and Trans Union. These are the big three but there are others. The point is, your past credit history is open for these companies to see. They’ll use various techniques to come up with a number known as a credit score.  Sometimes you may hear it referred to as a FICO score. FICO is an acronym for the Fair Isaac Company who developed the most popular statistical method for coming up with a credit score.

By the way, if you are just starting out and haven’t had a credit card or loan before, you won’t have a credit score. That may sound bad but its not really. You’ll need to build up your credit eventually and may consider getting a credit card for that purpose. Another thing you may want to do is to get what is called a secured credit card from your local bank. This allows you to get a card limit equal to the amount you may have in a savings account as security for the bank. Some people who have trouble getting a standard credit card can usually get a secured credit card. The bottom line is any of these will help you establish your credit score.

In any case, The first thing you should do is find out what your credit score is. Despite what you may have heard, you are permitted to view your own credit scores and not get penalized for it. Go on the web and search for companies that give you access to your own credit scores. Companies such as myfico.com and privacyguard.com are only two of the many that are out there. They usually charge a small fee but its worth it.

To keep your credit score high, you must always pay your credit cards and loans on time. A good lender can help you figure out ways to help you increase your credit score. As a Realtor, I’ve had my home buyer clients do specific things over the course of a few months to see their credit scores rise by the time they had a new house all picked out. For example, if you have credit cards that are maxed out, this will cause your credit score to fall. Either pay it down or transfer part of the balance to another under utilized credit card so that they both are below 50% of being maxed out. So lets say you got one credit card with a $5000 limit and you’re at a $4000 balance. You also have another credit card with a $6000 limit but it has nothing charged to it. If you transfer half of the $4000 on your first credit card to your unused credit card, you’ll end up have $2000 across 2 credit cards. Since they are now both below 50% of being maxed out to their limits, you should see an improvement in your credit scores. The 50% rule is not etched in stone, but its a good percentage to strive for since we’ve seen it have a big affect in the FICO scores.

There are many other fairly simple things you can do. My advice is to do whatever you can to pump up your score as it has a direct affect on your loan costs. If you can get your score into the 700′s say at least 720, then congratulations!  You’ll have an easy time getting a great loan with the best interest rate.

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