Managing your credit
Your credit can affect your loan application
While most consumers know that they have a “credit rating,” not all know their scores or how they were calculated. When applying for a mortgage, your bank review your past credit history and your credit worthiness for a mortgage. If your mortgage application is refused or approved for less than expected, there’s an opportunity for you to find out the causes and how to improve your credit rating.
Your credit worthiness is assessed in two ways:
- Your Beacon score, and
- A detailed credit history of your past few years.
How your credit is rated?
Credit scores range from 350 (low) to 850 (high), with 750 being the median. A credit scores range from 350-850, with 723 being the median FICO score of Americans. Credit scores below 600 are considered high risk borrowers, 620 being the dividing line between good and bad, 640 or above being “pretty good”, 650 as average general credit-use behavior, and above 690 or 720 being excellent.
The numerical score is calculated on previous payment history, current indebtedness, credit history length, number and frequency of new credit inquiries and, types of credit held. Two so-called “Beacon killers,” are payments more than 30 days late (even small amounts) and maxed-out credit cards. The detailed history adds personal information, banking information and specifics on accounts and payments.
Repairing your bruised credit
Repairing your bruised credit may not be easy, but over time it can be done. Here are three strategies to recommend:
- Pay all bills on time – late payments hurt ratings
- Keep credit balances below 75% of the maximum
- Avoid applying for additional credit; too many applications in a short period signals financial difficulties
You should also review their credit histories at least annually, which is free when requested in writing or by fax.