How Credit Scores Impact Your Mortgage Rate!
If you go on like one of the popular sites called Credit Karma, and you compare that to what your lender sees, you typically your rate that you see is going to be higher. And that's how FICO is calculated. The discrepancy can be frustrating for many consumers, as they rely on these free services to get an understanding of their financial health, only to be surprised when their lender presents a different picture.
Playing by the credit score rules!
I don't think it's a fair way of doing it because I believe in transparency in this business. I believe people should know what their score is and it should be the same score everywhere. But that's not how this works. Those aren't the rules we play by. So, we play by the rules that we're given. So how do we play? How do we navigate this system to your advantage? Understanding the differences in credit scoring models can help you better prepare for what lenders will see and make informed decisions about your credit health.
How do we handle help you the most to get your lowest rate, whether you're shopping for a home or shopping for a vehicle or even a credit card? First, we start by educating you on the factors that influence your credit score the most. This empowers you to take proactive steps to improve your credit profile, giving you a better chance at securing favorable rates.
How to improve your credit score!
First of all, a big percentage of your credit score is based on your outstanding balance on your credit cards. This is known as your credit utilization ratio, and it's crucial to keep it low. High balances relative to your credit limits can signal to lenders that you're overextended, which can negatively impact your score.
So your goal needs to be to hopefully pay them off every month. But if you can't, keep them each under 30%. This means if you have four cards or five cards, each one should be under 30% of the total limit. For example, if you have a credit card with a $1,000 limit, try to keep your balance below $300. This practice shows lenders that you manage your credit responsibly, which can positively influence your score.
Additionally, it’s important to regularly monitor your credit report for any errors or discrepancies. Incorrect information can unfairly lower your score, so dispute any inaccuracies you find. Utilize tools and resources to stay informed about your credit status, and consider setting up alerts for any significant changes to your report.
Lastly, building a diverse credit mix and maintaining a long history of responsible credit use can further boost your score. This includes timely payments on various types of credit accounts like mortgages, auto loans, and installment loans. The more you demonstrate your ability to handle different kinds of credit responsibly, the more favorably lenders will view your creditworthiness.
Conclusion
By understanding and implementing these strategies, you can work towards achieving the best possible rates for your loans, saving you money and providing you with greater financial flexibility. Stay proactive, stay informed, and remember that improving your credit is a journey that requires consistent effort and attention.
