Credit Scores Below 740 Cost You More Money

May 23rd, 2011 by Ham Thorne

When applying for a mortgage, a credit score below 740 will end up in a higher interest rate for you.

Recently I made a $250,000 mortgage for a borrower with a 655 score.  His monthly payment was $54.06 more than he would have paid if he'd had a 740 score.Credit card & casj.jpg

It's important to know what comprises your credit score.

Past payment history makes up about 35% of your score. This includes such things as information from public records on bankruptcies, foreclosures, tax liens, etc.  It also includes your repayment history.

A late payment only a month ago represents a higher risk than a late payment three years ago.

Your outstanding credit balances make up 30% of your score. This is the ratio between what you owe and your available credit limit on an account.

Ideally you’d want to keep your balances as close to zero as possible, definitely below 30% of your credit limit.

Credit history is 15% of the score. This portion of your score represents the time a credit account has been established.

An account history from one to two years will add about three times the points of an account opened less than one year. If the account has been open 2 to 4 years it will yield almost five times that of an account open less than a year.

The type of credit represents 10% of your score. A mix of auto loans, credit cards and mortgages is far more positive than just a concentration of debts from credit cards only.

Finally, credit inquiries represent 10% of the total score. The more inquiries you have during a 90 to 180 day period, the lower your score. Multiple car loan or mortgage loan inquiries within a 30-day period, however count only as one.

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Ham Thorne
Mortgage Planner w/ Directors Mortgage Inc.
4550 SW Kruse Way, Suite 275
Lake Oswego, OR 97035
503-645-7905 direct
971-404-3177 fax

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