Boost Your Credit Score
Banks, lenders, and many other businesses use your credit score to determine the likelihood that you will be able and are likely to pay back any money loaned. It’s a simple way to rank risks associated with you. The most common is the FICO® Score – three numbers that can greatly how successful and the rate that you will pay for mortgage loan.
As of March 28th, 2019, rates for top scorers are 3.672% APR while those for lower scoring applicants can be up to 5.261%. With the average home selling price in the U.S. at $374,000 as of December 2018, the differences in these rates will add up to a significant difference over the life a traditional 30-year loan. At these rates a 30-year loan would have a monthly payment of $1,716 for the highest bracket and $2,068 for the lowest bracket (see table below). Over the 30-year loan, the difference in interest paid is $126,810!
Boost Your Credit Score
It pays to improve your credit score before buying a home!
| FICO® Score | APR | Monthly Payment | Total Interest Paid |
| 760-850 | 3.672% | $1,716 | $243,595 |
| 700-759 | 3.894% | $1763 | $260,591 |
| 680-699 | 4.071% | $1,801 | $274,315 |
| 660-679 | 4.285% | $1,848 | $291,110 |
| 640-659 | 4.715% | $1,943 | $325,508 |
| 620-639 | 5.261% | $2,068 | $370,405 |
Source: myfico.com on March, 28th 2019
Step 1: Pull your credit reports for free at this government website (https://www.annualcreditreport.com) and get your credit score for free by signing up for a service like Mint.com or downloading an app like CapitolOne CreditWise (https://creditwise.capitalone.com). Experian, TransUnion, and Equifax are the big three credit agencies in the U.S. that calculate scores and issues credit reports.
Step 2: Boost Your Credit Score
Here are a few ways to improve your credit score.
- Dispute any errors on your credit reports from the three agencies that were pulled in Step 1
- Make all payments on time, every time!
- Pay off debt, particularly consumer debt like credit cards
- Keep your credit utilization rate below 30%, ideally below 20%. This the amount of combined debt you have on credit cards versus their limits. If you have a limit of $10,000, then you would want to have balances less than $3,000 or $2,000 ideally.
- In some situations, you may open a new credit card which can help your utilization rate. If you have other cards, do not use this one. If this is your only card, use it and pay it off on time, every month to establish history. If you have poor credit, you can open a secured credit card where you deposit money into a bank account which is used as collateral (it’s similar to a debit card but is reported to the credit agencies).
- Limit the number of “hard inquiries” to your credit from applying for multiple credit cards, multiple loans, etc. Ask if companies like cable and cellphone providers can do a soft inquiry instead which will not impact your credit score.
- Become an authorized user on someone else’s credit card (who makes payments on time and has a good credit score). Your parents or a relative may be willing to do this without giving you the card.
- Dispute any errors on your credit reports from the three agencies that were pulled in Step 1
- Do not cancel any old accounts that you no longer use as age of accounts is a factor in determining your credit score.
- Look into score boosting programs such as Experian Boost and UltraFICO.