Your Credit Score and Options

Credit scores play a significant role in influencing various aspects of everyone’s financial life. A credit score is often used as an indicator of your financial responsibility and management habits. Your credit score influences these items: loan approvals, interest rates, employment opportunities, insurance premiums, utility services, credit card approvals, credit limits, house and apartment leases, cell phone contracts, security deposits, negotiating power, qualification for financial products, security clearances and overall financial health.

Understand Your Credit Score
Credit scores range from 300 to 850 and are used as a gauge of your ability to fulfill obligations. A high score indicates a high ability to repay debts. It is based on many factors, but the primary issues are your previous payment history, amounts owed and credit history.

Before applying for any loan, know your credit score and what items are on your credit reports. Sometimes, there are surprises such as unpaid medical expenses, mistaken identity or outright fraud. These can be resolved, but it takes time and sometimes money.

There are three credit reporting agencies: Equifax, Experian and TransUnion. Consumers are entitled to one free report per year from each of the agencies. If you don’t want to enter information online, call 877-322-8228. Otherwise, request free reports at www.AnnualCreditReport.com.

While the credit score determines your initial ability to be approved for a loan, it’s a primary tool to determine interest rates that you will be offered for a loan. Buyers with high credit scores should be offered lower interest rates and save money over the length of the loan. If the score barely passes the minimum threshold, offered interest rates will probably be higher than better-qualified applicants (2% to 4% or higher in some cases). Each 1% of increased mortgage interest drops home buying power by 11%.

To purchase a house, various factors are considered. However, 660 is considered a “acceptable” score. A house lease will often require a score of 620 or better. To learn more about the various options available and required scores for home loans, please read this post by Experian. 

To learn more about how credit reports affect buyers’ ability to get loans or leases, please read this post from TransUnion. 

Ways To Improve Scores
Fix inaccuracies. If there’s an error, the Consumer Financial Protection Bureau (CFPB) provides resources at CFPB.gov to help consumers dispute errors on their credit reports.

Scores can also be improved by eliminating debt and paying the entire balance each month (weekly is best) before any deadline. Don’t open new lines of credit. Don’t move debt from one card to another. Minimize balances with the highest interest rate first. Pay bills automatically.

History itself is 50% of the score. Consequently, regular payments over time are the most surefire way to keep credit scores healthy or improve current scores.

Since credit history is important, keep your oldest credit card with the longest history but minimize or frequently eliminate the balance. Meanwhile, pay off newer credit cards first. However, keep them open at a zero balance because closing accounts simultaneously can be a red flag.

Lease With a Right to Purchase
If a mortgage isn’t possible, a “Lease With a Right to Purchase Program” allows tenants to find a home to rent that they may also want to buy in a few years. This option is useful during the credit repair process because some property management companies accept applicants with a combined household credit score of 550 or higher. Talk to your real estate agent to learn more about these programs.

I've Got Your Six!

Mark M. Hancock
214-862-7212
DFWmark.com

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