5 Things home buyers should know about credit scores

“Your credit score.” This phrase can often spark both anxiety and confusion in your clients, and rightly so.

This three-digit number plays a fundamental role in their finances, and can affect everything from their employment potential to their ability to apply for mortgages. Not only does a weak score damage your clients’

creditworthiness, it will also cost them more money in the long run.

People with a weak credit rating will pay approximately $250,000 more in interest throughout their working lives than those with stronger scores. Therefore, given the weight that this number carries, it is integral that your homebuyers know the ins and outs of their credit score in order for them to create successful financial futures. If you find that your client is concerned about their credit score, discussing the points below may help to give them peace of mind.

1. Your credit score is a gauge of your ability to make your mortgage payments.

Your credit score, or credit rating, is a three digit number that gauges your financial responsibility by measuring your ability to manage your credit and make payments on time. The term “credit score” generally refers to your FICO score, a number calculated by the Fair Isaac Corporation. FICO scores range from 300 to 850, with scores above 700 being ideal, scores below 600 being problematic, and scores falling between 680 to 720 being average. These numbers determine whether you are a high or low risk. A person with a score of 700 or higher is considered low risk and is more likely to be approved for mortgages and loans, while a person with a score of 600 or lower is considered high risk and is unlikely to receive credit of any sort.

One positive aspect of credit ratings is that they are constantly changing and updating, so each month you have the opportunity to improve your credit history, which will improve your credit score. However, it is important to remember that serious damage to your credit score may take years to repair, and therefore it is important to achieve and maintain an average to above average credit score in order to prevent bad credit from accumulating.

2. You don’t need a perfect credit score to get low interest rates on your mortgage.

Though it is possible to obtain a perfect credit score and it is certainly a goal to strive for, it is not necessary for you to have an 850 FICO score in order for you to obtain the lowest interest rates. There is almost no difference between the credit terms or interest rates offered to people with an 800 compared to people with a perfect 850.

Another point you should consider is that, though you may be able to achieve a perfect credit score, there is no guarantee that it will remain a perfect 850, and there is also no guarantee that if that number drops you will be able to bring it back up.  Your credit score is a constantly fluctuating number, and a perfect 850 is not worth spending copious amounts of time worrying over. In order for you to have the best rates as a consumer, your main concern should be to achieve a healthy credit score and maintain that score.

3. There are no quick fixes for credit scores, but bad credit isn’t necessarily permanent.

There are a number of ways to improve your credit score, however, there is no fast and easy way to do so. In fact, when you attempt a “quick fix” it is likely that you will do more harm than good. An important point to remember is that, though damaged credit may be daunting it is not permanent. Therefore, the best way to improve or repair damaged credit is to keep a level head and devise a strategy for rebuilding your credit properly and responsibly.

4. Credit counseling can help.

Many people are wary of credit counseling since they believe that it will negatively affect their credit score. This could not be further from the truth. The Fair Isaac Coordination, the company responsible for the majority of credit scores, sums up credit counseling by stating that:

“Simply obtaining counseling has no bearing on your credit score, as it is not reported to the credit bureau. Therefore, people should not have any hesitation about seeking the help they need to resolve their debt, housing or other financial issues. However, the actions you take based on the recommendations of a credit counselor may sometimes affect your score”.

Credit counseling can only help to rebuild and reestablish your credit score and financial freedom. It is up to you to decide whether or not you wish to follow their advice. Bottom line? It is you and you alone that is responsible for your credit score.

5. You can monitor your credit report for free.

Credit monitoring is perhaps one of the best ways to keep an eye on your credit score. The best way to do a credit “checkup” is by requesting a free credit report at least once a year from an organization such as Equifax, Experian, or TransUnion. Checking your report will provide you with information on any significant changes, will alert you to any suspicious activity on your accounts, and will not have any negative effect on your credit score.

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