Why the Competition Loves Your Bad Credit
How much does a low credit score cost you over a lifetime?
According to a survey from LendingTree, it could be over $45,000 more than those with very good credit scores. Their data analyzed five big ticket items borrowers tend to finance: student, auto, personal, credit card and mortgage loans. They found homebuyers with fair credit pay $29,000 more over a lifetime than their good credit counterparts on average. Why? Because a lower score means higher interest payments.
For homebuyers in Northern Nevada, competition is at an all-time high, and your bad credit score is good for the competition. Rising prices, lack of inventory and shortage of labor make it hard on homebuyers, especially those with poor credit. So if you’re struggling with lackluster credit, we’ll shine a light on how to boost your score.
What is a FICO Score?
Your FICO score is that three digit number ranging from 300 to 850 lenders use to approve your loan, determine your interest rate and define your terms. The lower your number, the higher the risk you are to lending companies. They want proof you’ll pay them back. In addition to payment history, your score is calculated using four other components: amount owed, length of credit history, new credit and types of credit.
What is a good FICO score?
Having good credit simplifies the homebuying process. Lenders want your business. And they’ll offer enticing rates to get you to sign with them. For most creditors, a score between 700 and 850 is considered good to perfect. Anything less may not be overlooked, but it will devalue your terms and make it easier for the competition to close.
So what is a good credit score when buying a home? It varies, but strive for good to great.
How do you improve it?
There are plenty of opinions on how to protect your credit. Carry a balance. Max out then pay. Own two cards, but use none. So what’s the real truth behind building and keeping good credit?
NerdWallet has the facts:
- Use your credit. Lenders will love that you’ve upheld your end of the bargain. Pay on time and boost your score.
- But don’t use too much. Exceeding 30% of your limit will hurt your credit — staying well underneath this is best. Sign up for balance alerts or double your payments to keep spending habits in check.
- And carrying a balance will cost you. You aren’t given points for maintaining a balance, so don’t risk crossing the line of “too much.” And remember, you’ll pay interest on balances outstanding.
Don’t know your score?
Find out. There are a few easy resources to check.
AnnualCreditReport.com provides a free copy of your credit report every 12 months from each credit reporting company. CreditKarma.com offers education and monitoring tools in addition to free scores and reports. Another resource is with your credit card company who may offer this benefit to account holders.
If you’re buying a home in Northern Nevada the first step to closing is awareness. Knowing your score will open doors to progress, and support long-term goals of success. Contact our agents to get financially fit and into a new home today.