Vendor Spotlight: David Boswell and Austin Manno with Main Street Home Loans
Each month, we spotlight one of our favorite vendors. While you can always reach out to us to see our complete list of names, categories, and contact information (frequently updated!), these blogs will give you a deeper understanding of who these people and businesses really are. This month we get some credit score advice from David Boswell and Austin Manno with Main Street Home Loans.
Before we dive into how our credit expertise and the tools we use could find the best path to a higher score, it's important to understand how the credit scores are calculated.
How Are Credit Scores Calculated?
Your credit score is the numerical value assigned based on the information on your credit report. Credit-reporting bureaus use complex and proprietary algorithms to calculate these, but the most widely used are FICO scores. FICO scores can range from 300 to 850, and they give potential lenders an idea of how much of a financial risk you are. To them, the higher the score, the more likely you are to repay the debt and not be late on payments or go into default.
Each type of credit score uses algorithms to calculate the potential risk by adding value to items such as payment history and number of credit inquiries. For FICO scores, there are 5 factors used to calculate credit scores. Each factor has different weight in how much they affect your credit score.
1. 35% – Payment History
The greatest impact on your credit score is paying off debts on time. If you have late payments, delinquencies, or charges, your score will be impacted negatively. However, having a few late payments does not mean that you will automatically have a low score since this is just one piece of the information used to calculate the credit scores.
2. 30% – Amount Owed
The ratio between the amount owed and the remaining available credit has a high impact as well. Owing money on credit accounts does not necessarily have a negative impact on the score but having high balances can indicate that the person is overexerted and more likely to miss payments.
3. 15% – Credit History
The length of time credit lines have been opened increases your score. Note that it is also taken into consideration how long it has been since you used certain accounts.
4. 10% – Type of Credit
Types of credit, such as credit cards, retail accounts, installment loans, and mortgage loans will be taken into consideration. Having good debt, such as credit cards and installment loans, will bring up your scores.
5. 10% – Inquiries and New Credit
The number of inquiries and new credit accounts are taken into consideration since people that opened several credit accounts in a short period of time are a greater risk of not paying back their loans.
What is the Potential Impact of a Higher Score?
Although some mortgage programs are more flexible while some more strict, the interest rate you are offered has a direct relationship to credit score risk tiers set by each mortgage program. Generally speaking, you need to have a minimum credit score of 620. From there, the tiers are set at 20 point increments (i.e. 620-639; 640-659, etc.). Moreover, once you reach 780, you will be rated at the lowest risk and offered the lowest interest rate.
The difference between 759 and 760 credit score could be a 1/8th percent lower rate. This might not seem like a lot but could save you thousands over a long period of time. In some cases, we have seen 100 point credit improvements with nearly full on percent lower interest rates that are saving our clients 10's of thousands over the life of the mortgage.
So, How Might We Help Improve Your Score?
For starters, we have twenty plus years of experience evaluating credit and how to best approach credit repair. In addition, we are heavily invested in technology that helps simulate the impact on your credit score given suggested changes to your credit.
After receiving your mortgage application and authorization to obtain your credit history and credit scores, we take the following steps to determine if there is an immediate and/or long-term path to improving your credit rating:
- Manually review all credit components to identify any obvious items that could be impacting the rating.
- Run a software application against the credit report that will suggest debt to be paid to immediately improve the credit rating.
- Use another software application to manually simulate changes to credit history, current credit balances and/or additional credit needed to improve the credit score.
- Review the results with you and develop a strategy and plan to an optimal credit rating.
When Should You Consider Our Evaluation Services?
Even if your plans to buy a home are one or more years away, it is best to work on your credit rating as soon as possible. In fact, the earlier you get started on immediate improvements and the path the over 780, all the better.
Knowing your FICO score and creditworthiness is important, especially if you are looking to get a new loan. You can use websites that provide free credit scores, but often these websites provide you with an estimate rather than your actual score. The Consumer Financial Protection Bureau (CFPB) published a report on the differences between credit scores available to consumers and those to lenders, so make sure you do your research before you submit an application for a loan.
When you are ready to take the next steps in the home purchase process or should you have any questions about credit scores, whether you qualify for a mortgage loan with your current credit score, or how to apply for a loan be sure to give David and Austin a call at 571-616-0122 or send them a message to [email protected].