Understand Your Credit Score and Then Improve It

how-does-your-credit-stack-upI have had the pleasure of working with a lot of home buyers in Santa Cruz looking to buy their first home or even their second or third home.

I can’t tell you how many times I meet people who are ready and willing, but not able. They have a steady job with a good income and by all accounts should be able to buy that new home. There is just one little three digit number getting in the way. Their credit score! It breaks my heart to tell them that they will have to wait on reaching their dream, but I will never leave it there.

I love to encourage my Santa Cruz home buyers to take control of their credit score and make it work for them. It can be a six month process to get it under control, but it’s worth it in so many ways.

Your credit score is calculated based on information in your credit report, which is a profile of how you manage your credit (loan) accounts.Your credit report details how many credit accounts you have, how much you owe, the amount of your credit limits (primarily applies to credit cards), when you opened the credit account, your repayment history (including late payments), and certain public records (for example, a bankruptcy filing or a tax lien). Each of the three national credit bureaus (Experian, Equifax, and TransUnion) maintains a credit report about you.

In calculating your credit score, most credit scoring models assign a higher weight to your payment history and amounts owed than to the other factors. These two factors will, therefore, have a greater effect on your score than the other factors.

But it is important to try to do well on all of the factors so you can maximize your score.

  1. 35% Based on the number of accounts paid on time
  2. 30% Based on the amount owed on all accounts
  3. 15% Based on the length of time since the accounts were opened, by account type
  4. 10% Based on the number of recently opened accounts and inquiries by creditors
  5. 10% Based on the account type

Open new credit accounts only as needed; new accounts decrease the average age of your total accounts.
Having accounts that have been opened a long time increases your credit score. A higher credit score is important because this is one of the factors that determine whether you will be approved for credit and the cost of your loan. Applicants with high credit scores typically are offered lower interest rates and better terms and conditions than applicants with lower scores.

At least once a year, review your credit reports from each of the three credit bureaus (Experian, Equifax, and TransUnion) for inaccuracies and file a dispute immediately if you find an error.

 With the summer home buying season in Santa Cruz upon us, if you are considering selling your home in Santa Cruz, Aptos, Capitola or Watsonville, please call Hyko today at (831) 477-5815. You can also contact him to schedule a personal consultation.

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