What’s in a number? Your chances of getting your new Las Vegas dream home – that’s what! Your credit score can be the one thing that keeps you from owning your next home, so let’s look at how your score is determined and how you can keep (or get) your score up.
The whole point of a credit score is to offer lenders a quick and easy way to estimate the risk associated with lending you money. If lending you money is riskier (because you’re more likely than someone else to default), the lender will charge you a higher interest rate to compensate for that higher risk (or will simply not lend to you at all). The most commonly used credit scoring method is the FICO score.
Here are the five factors (and their relative importance) that determine your credit score:
#1: Payment history (35%). The payment history factor is fairly simple to understand: it takes into account how you’ve paid your bills. After all, your history of debt repayment is an excellent indication of whether or not you’ll pay your future debts on time. Payment history includes delinquencies, foreclosures, bankruptcies, as well as how many accounts were paid late, the amount(s) that were paid late, and how recent those delinquencies are.
#2: Amounts owed (30%). Almost as important as how you’ve paid your bills is the amount of debt you hold. That’s because the more debt you hold, the riskier you’ll become – the more debt you have, the more likely it is that you’ll default on one or more of those debts.
#3: Length of credit history (15%). The longer you’ve had accounts open, the more debt repayment history there is for potential lenders to look at. And the more on-time debt repayment history you have, the more confident your lender can be with your ability to repay your debts on time. If you’ve just begun to establish your credit history, on the other hand, your lender has less “past behavior” to judge you on.
#4: New credit (10%). Research has shown that people who take out a lot of new credit at one time pose greater credit risks than those who have not taken out new credit lately. The “new credit” factor incorporates, for example, the number of recently opened accounts you have in proportion to older accounts and the number of times you’ve recently applied for new credit.
#5: Types of credit used (10%). This factor considers the types of debt you have – installment debt (like a mortgage) and revolving debt (like credit cards).
Why does it matter? Your credit score will affect not only whether you’re able to qualify for a Las Vegas home mortgage, but also the rate you can get. The following table is an example of how much less a person with a higher credit score might pay each month:
On a 30-year fixed rate, $150,000 mortgage, a Las Vegas homeowner with the highest credit score would pay $150 less every month – and $54,133 less over 30 years – on their Las Vegas home than a homeowner with a fair (620-639) credit score.
At Shelter Realty, we understand numbers (like your FICO score, the price of your new home or your new zip code) and how important they are. So call our agents today at (702) 376-7379 or visit us at www.shelterrealty.com and let us show you our numbers.