Newtown PA Mortgage Lender

Common Myths About Home Loans and Credit Scores

There are a lot of myths floating around about credit scores when it comes to getting a mortgage. One of the most common myths is that you need to have a perfect score to qualify for a great interest rate. Credit scores can range anywhere from 300 to 850, and there are a lot of different factors that go into determining what your score is. Credit scores in the 700 – 759 range are considered “good”, while scores 760 or higher are considered “great”. When buying a home, mortgage companies will use the middle score from the three bureaus – TransUnion, Equifax, and Experian – as one factor in determining your interest rate. Credit scores of 760 or higher often result in an interest rate that is approximately 1/8 of a point higher than a credit score in the 700-759 range.

Simple ways to improve your credit score

If your credit score is not where you want it to be, don’t worry! There are a lot of different, and quite easy, things you can do to improve it. Here are four things to try:

• Use 50% or less of your available credit on each of your credit accounts – you can either pay down your debts or request an increase in your available credit.
• Don’t close old credit card accounts – in credit score terms, long-term accounts are better than newly opened accounts. Tip: even if you pay off a credit card, don’t close the account.
• Limit credit inquiries – avoid opening new credit accounts around the time that you plan to buy a home.
• Pay your bills on time – make sure all payments are made on time. Late payments, especially near the time you plan to buy a home, can have a negative impact on your credit score and, thus, your interest rate.

How is my credit score determined?

Credit scores are driving forces for nearly everything these days. A low credit score may mean having to put a deposit down when opening utilities or not being able to obtain new credit for an auto loan, credit cards or a new home. With a low credit score you can also count on higher rates on any new financing. Here’s a breakdown of how your credit score is derived.

• Payment History – 35% Impact – Paying debt on time and in full are positive marks on your credit report. Late payments, collections and judgments all have a negative impact on your credit score.
• Outstanding Credit Card Balances – 30% Impact – A high outstanding balance compared to the available credit can have a big impact on your score, especially if multiple accounts have balances that exceed 50% of the available credit.
• Credit History – 15% Impact – The longer you have credit the better your score.
• Type of Credit – 10% Impact – A mix of loans (auto, student, credit) is always better than having a high concentration of one type of loan, especially credit cards
• Inquiries – 10% Impact – This is based on how many people have pulled your credit in the last 12 months. If you pull your own credit there is not an impact to your score.

If you follow these tips to improve your credit score, and still don’t see an increase, there are still more options to try! Reach out to your trusted lender at Apex Home Loans to discuss other possible ways to improve your credit score.

For more information on our mortgage program, please contact Bill Mervin Team.

Helpful local public sites in Newtown PA:

• Newtown Township
• Newtown Chamber of Commerce
• Newtown Public School District