Since the Summer of 2013, we have entered a rising interest rate market where the rates have spiked much higher. In fact, recent decline of home sales in California is directly attributed to this rise in Mortgage Interest Rates.
So, if banks have gotten nervous about lending on Real Estate deals, then you need to do as much as possible to get the best rates possible. That’s why we wanted to document the Top 5 ways to improve your FICO score for a mortgage loan:
1) Length of Credit: For mortgage lenders a credit card that you have been using for 10 years is more valuable than the one you got 2 years ago with a higher limit. That’s why the allocate 15% of the FICO score calculation to this category.
2) Payment History: 35% of your overall FICO score is determined by your payment history. If you have missed payments on your previous mortgage or credit card this will seriously reduce your FICO score.
3) Amount Owed: If you have a credit card with a 1,000 limit and you owe more that 300 dollars or 30% on it, then your FICO score will be negatively impacted by this amount of debt which is considered high.
4) Types of Credit: Types of credit composes about 10% of your FICO score. If you have had mortgages that have been paid off or refinanced, it will improve your FICO score. But if there are Notice of Defaults or Bankruptcies in your history, your FICO will be severely impacted.
5) New Credit: Keep in mind that every new credit inquiry will lower your FICO score. New credit inquiries and starts are seen as risky and will impact your credit negatively. For instance, if you are shopping for a car and the dealers keep pulling your credit several times a month that is considered a risky profile. The impact of these inquires are minimized if they are done within a compressed window.
Bottom line if you are in the market to buy a Los Gatos home in 2014, you will be paying much higher interest rate for it. But if you implement the Top 5 ways mentioned above your higher FICO score could save you some money in your Notes rate. After all it pays to be a smart borrower.
If you have any questions about your credit, contact us.