For those of you living around San Mateo, you already know it’s costs a whole lotta moola to buy a house here. Today,the banks aren’t making it any easier and many of them expect you to have at least a 720 FICO score before they will to talk to you about a new loan. Did you know, that there are ways to Raise your Credit Score 100 points within 45 days? Yes, it’s all legal, but it will take a lot of work on your part.
How does your FICO score affect your ability to borrow? Plenty! It affects your interest rate on anything you borrow, whether it’s a mortgage, a car loan, or new credit for purchases. Not only that, it affects the payment you will have.
This is what makes up your credit score
- Payment History – 35%
- Balances Carried – 30%
- Credit History – 15%
- Mix of Accounts – 10%
- Inquiries – 10%
Next in importance are the current balances being carried on your credit cards. This score is 30% of your FICO. Keep all of your balances as low as possible. One of the things they look at is your balance versus your available credit.
|Credit Card||Balance||Available Balance|
If you leave your credit card balance “as-is” it will be a
Lower Credit Score. But, if you spread your balance between the two cards such as $5000 to each card, you will get a Higher Credit Score.
|Credit Card||Balance||Available Balance|
Next, they look at your Credit History. They give it 15% weight. The longer your credit history, the higher your credit score. Long Credit Histories paid As Agreed are a positive impact to your credit score. Never close credit accounts! If you have had an account for years and don’t use it, do not close the account. Believe it or not, it will have a Negative Impact on your Credit Score.
The Mix of your Accounts get a 10% weight. They want to see both Installment and Revolving Accounts.
- Mortgage Loans
- Auto Loans
- 3-5 Credit Cards, or more
If you have a Home Equity Line of Credit today, and it’s for $40,000 or less, it will be reported as a Revolving Account rather than as a Mortgage. That could impact your score.
Credit Inquiries get 10% weight. This is the biggest question I get when I have a new client. How badly will my FICO get hit because of credit inquiries? If you are shopping around for a mortgage or auto loan, try to make only one inquiry each 45 days. If you do more, you’ll get hit 5 points for each inquiry. The good news is that only the first 10 inquiries count each year! After 10 inquiries, they won’t ding you. But that’s 50 points, so you need to weigh it carefully whether it’s worth saving 1/10% on that deal versus losing 50 points off of your FICO score.
There are some inquiries that will never hurt your score and they are job related, insurance or utilities related, an account review or for your own personal review and any pre-approved offers you might receive in the mail for credit.
Blemished credit can be costly. A Low Credit Score = Higher Interest Rates on
- credit cards
- auto loans
- insurance premiums
How can you increase your credit score by 100 Points?
- Pay Past Due Accounts –
Pay all accounts that are past due (and that can be as little as 1 day).
- Get rid of Late Payments
Phone your creditor and request that your Late Payment be Removed. Be persistent and keep asking for a manager. Once it’s removed ask for a Letter that documents your name/address/account #, specify the item to be removed, ask for this on their Company Letterhead
- Have your Credit Limit Increased
Request an increase to your Credit Limit every 6 months based on your Credit History. If they want to pull your credit, tell them NO.
- Do Not Close Old Accounts – Keep them Open.
Use your old accounts periodically by charging small amounts and paying off immediately. Closing an account with a long Credit History hurts Your Score.
Finally, borrow when you don’t need to. Keep your balance to limit ratio low. When a Creditor removes late charges and provides you with that letter, use a Credit Re-score.
Increasing our Credit Score by 10 Points equals a savings of $100,000 over 30 years on a $500,000 mortgage.
The banks are very cautious about lending today. You need to show them that you are a good risk, manage your money wisely and have stable employment. If you follow this you’ll come a long way towards being considered a good risk in San Mateo County.