How is my Credit Rated Part 1?
June 29, 2009 by Matt Freeman
Filed under Buying a Home, Strategic Partners
Michelle Luker is back again at California Home Strategies to continue a series on understanding how our credit score is derived. This is Part one in a five part series that we will be rolling out. If you have any questions regarding your credit contact myself or Michelle Directly.
At Capital Credit Source, we feel that educating people on credit scoring is extremely important to their financial well-being. I wanted to take this opportunity to explain the credit scoring system to you since I feel credit scores are much more important than most people realize. On average, even a 10 point increase in your credit score will save you in excess of $100,000 over the life of a $250,000 30-year fixed loan.
Although seemingly complex and often confusing, your credit score is essentially based on five key factors, the first and most important being payment history.
35% of the score is based on how you handle your debt obligations
- Pay all bills on time and try to avoid getting a tax lien or a judgment entered against you because those also affect your payment history in a negative way.
- Please note that paying a past due balance on a collection or charged-off account does NOT increase your credit score and may even have the opposite effect more times than not. I do no suggest paying these types of accounts when you are planning to apply for a home loan in the next six (6) months. Please let me clarify that I am not suggesting that you not pay these accounts, but that you consider waiting until after the loan closes to pay them since it can reduce your score and hurt your chances of getting loan approval. However, since not paying them can lead to a lawsuit being filed or the debt being sold to several collection agencies in the future – both of which will damage your credit even more in the long run – one excellent solution would be to negotiate to pay or settle these account either concurrent with the loan closing or shortly after. An alternative would be to settle these types of accounts for deletion with payment if you are able to get the creditor to agree to do so.
Michelle Luker
Office: 916-652-9637
Cell: 916-316-0247
Fax: 916-644-6626
Capital Credit Source, Inc.
4804 Granite Drive, Suite F-3261
Rocklin, CA 95677
