Your credit score is that tricky little number that makes a big impact in determining the rate of your California mortgage. If you take your credit score seriously you could save some significant cash. Not familiar with a credit score? Here’s the most frequently asked questions.
WHAT IS A CREDIT SCORE?
A credit score is a 3 digit number that summarizes the information from your credit report. The number represents how likely you are to make payments on time (or not). It’s used regularly for getting mortgages in California.
HOW IS IT USED?
Credit scores are used extensively, and if you’ve gotten a home loan, a car loan, a credit card or auto insurance, the rate you paid was directly related to your credit score. The higher the number, the better you look to lenders. People with the highest scores get the lowest interest rates.
WHAT ARE SOME CREDIT SCORE FACTORS?
There are several different credit score models - one of the most common being the FICO score. Three key sources that determine this score are account information (credit cards, auto loans, student loans, mortgages), public records (tax liens or bankruptcies) and inquires (when lenders view your credit). Demographic information such as age, gender, and marital status are not calculated.
WHAT IS A GOOD SCORE?
The FICO scoring models range from 300 to 850. The vast majority of people will have scores between 600 and 800. A score of 720 or higher will get you the most favorable interest rates on a California mortgage.
WHY IS IT SO IMPORTANT?
It’s a powerful little number. The difference in the interest rates offered to a person with a score of 520 and a person with a 720 score is 4.36 percentage points, according to Fair Isaac’s Web site. On a $100,000, 30-year mortgage, that difference would cost more than $110,325 extra in interest charges, according to Bankrate.com’s mortgage calculator. The difference in the monthly payment alone would be about $307.
HOW CAN I IMPROVE MY SCORE?
Your credit score is being built up over years of activity, so there’s no “quick-fix”. With that said, improve your score as soon as you can. Pay your bills on time, and if you’ve missed payments - get current and stay current. You’ll also want to avoid high balances on credit cards and other revolving credit. It’s good to use credit cards, but manage them responsibly.