Credit – It Is That Important!

It’s March which means it’s time to celebrate something more than basketball and the changing of seasons.  More importantly yet less commonly known, March is designated as National Credit Education Month. Do you know your 3 little numbers?

You Need My Credit? … For What?

Its 2015 and your credit profile is more important than it has ever been! It’s used for almost everything pertaining to finances. As we all know, auto loans, credit cards, personal loans, and home loans all hinge on a credit score for qualification. It dictates how much you borrow and how much it may cost you over the life of the loan. Or, if you get to borrow at all! Becoming more prevalent in 2015, almost all home and auto insurance companies are now setting insurance rates based oncurrent credit scores. Believe it or not, premiums are subject to change as a result of a change to your credit profile mid-policy. The reasoning is quite simple; it has been found that those with poor credit are more likely to file a claim. Lastly, your career may also be determined by your credit profile. Many industries require strict standards in order to be a part of their industry.

We have all heard “give credit where credit is due“. However, credit gets little credit where significant credit is due. That is, until you need it of course. At that point, it’s worth everything! Those 3 numbers alone can cost tens or even hundreds of thousands of dollars throughout our lifetime. Building credit requires knowledge, time, discipline and yes, money.
Be In The Know and Watch It Grow!

Credit is built by many little pieces that fit almost perfectly together. And in order to build the perfect profile, you need just the right amount of each. Don’t worry if you may not be able to achieve perfection in each of the following categories, just work hard to meet as many of them as possible. In the end, obtaining financing does not require “perfect” credit. Money just comes cheaper when it is. Below are the key factors that affect your credit score.

• Age of accounts – The older, the better. The ideal profile contains accounts with 7+ years history.
• A good blend of each of the 2 account types
  • Fixed Installment debt-student loans, home and auto loans (good debt, I say that because you know the term and the payment)
  • Revolving debt- lines of credit, credit cards and store credit (bad debt because they tend to have compounding interest with no fixed terms or payments)
• Number of accounts – Ideally 2 fixed installment (1 mortgage, 1 auto) and 2-4 revolving credit cards that meet the next 2 bullet points.

• Utilization of revolving accounts- (balance/limit), ideally sub 30% or even sub 10% for high achievers.
• Pay history- the longer the history of perfect payments, the better. 7 years ideally.
• Public records such as liens, judgments and collections. All bad if within 10 years.
• Credit inquiries- few of them as you don’t want to look desperate to borrow.

Now, don’t be nervous if you don’t meet all or even half of the criteria above—your Loan Advisor can help you with that. In today’s low interest rate environment, great home loan products still exist for those with less than perfect credit. Most banks only require a 620 score in order to qualify for financing. In addition, your equity position may have nearly as much impact as the credit score itself when borrower against your home. For instance, a 660 credit score which is nearly 200 points from being perfect but has built 40%+ equity in their home can qualify for a comparable product as the 740 score with only 20% equity.

If you are considering exploring whether more advantageous home loan optionsexist, chances are they do. A federally licensed Loan Advisor will provide you with the education needed to obtain the best loan for your money, circumstances and credit. Because they have been trained to provide detailed information specific to your credit profile, ask your Loan Advisor for a free credit review.

With 16.6 million people reporting identity theft each year, it’s not worth it to guess what may be on your credit profile. Let’s celebrate National Credit Education Monthtogether! Working with a licensed Loan Advisor to become more educated about your individual credit profile now could save you significantly in the future.