When it comes to getting a loan in real estate, you are going to want an awesome credit score. But unfortunately, this can be a pain to monitor. Understanding how your credit score is calculated and what you need to be aiming for can be vital to getting great interest rates!
For many people, keeping a close eye on their credit score and actively maintaining a healthy score can be a daunting task. This is especially true for anyone along the spectrum of new life choices or unexpected changes. Whether it’s purchasing a vehicle or home, or perhaps a sudden barrage of medical bills, one can be faced with the reality of the power held by those three numbers.
Your credit score is composed of five determining factors: Payment History, Outstanding Credit Balances, Length of Credit History, Type of Credit and Credit Inquiries.
- Payment History. Payment history is of very high importance as it accounts for 35% of your overall score.
- Outstanding Credit Balance. Followed closely is your outstanding credit balance, which holds 30% of your score. It is important to maintain a good payment history and to monitor your Outstanding Credit Balances closely. These have the greatest impact on your score and can affect it quickly. If you see a mistake in either of these areas, it is imperative to resolve it quickly for the sake of your score.
- Length of Credit History. Over time, credit can improve with the Length of Credit History element, which accounts for 15%.
- Type of Credit. This comprises 10% of your score.
- Credit Inquiries. The final 10% of your credit score is made up by credit inquiries.
Unfortunately, about 79% of all credit reports contain mistakes of some kind. Furthermore, 25% of credit reports contain errors that result in credit denial. You should also frequently inspect your report for personal information, making sure what is listed is current and accurate.
Another important aspect to note on your report is the accuracy of your closed and open accounts. As many as 30% of reports incorrectly list closed accounts as open–which can negatively impact your score! To view your credit report and score, pay for a copy from each of the following agencies: Experian, TransUnion and Equifax. Most of the free reports don’t include your credit score. And remember, lenders will use your middle score from each of the reporting agencies.
Monitor your credit closely and file any disputes promptly. If you work on improving the health of your credit score, you will benefit by receiving lower interest rates for future projects.
Defining the Score
Let’s break down those numbers to get a better understanding of where you are and what it means for you.
- 850= Highest. If you are here, you are golden. You can expect the lowest of interest rates; any institution would be pleased to grant you a loan or anything else you might be requesting.
- 720= Outstanding. This is an excellent score and you can negotiate some good interest rates. Most institutions will grant approval with this score.
- 680= Good. This is a decent score. You are looking at a little bit higher interest rates with the possibility of some hesitancy or possibly denial of larger loan amounts.
- 620= Danger. This will cause concern for many institutions and higher interest rates.
- 500= Needs Work. It will be difficult to get approval for loans and other financial endeavors. There are most likely red flags on your credit report that need your attention & action to resolve.
Got questions about your credit score? Let me know down below by leaving a comment and I will do my best to respond!
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