Do you know your credit score? My bet is that you do…or at least you think you do. With the creation of websites like FreeCreditReport.com and CreditKarma.com along with credit monitoring services offered through credit card companies it has never been easier to keep tabs on your credit.
This is a good thing because your credit and credit score has a major impact on your LIFE!
Your Credit Score
You might think you have just one credit score. Or one from each of the three credit bureaus (Equifax, Experian and Transunion).
Actually there are many different credit scores depending upon your reason for pulling your score. Did you know that? Find out more about credit by taking our credit quiz…
When you get your credit score from sites like FreeCreditReport.com, CreditKarma.com or your credit card company offering credit score monitoring you are getting an estimate of your consumer credit score.
If you are looking to buy a home, refinance a home, get an auto loan, or apply for a credit card you will have a different credit score for each situation and even those scores fluctuate from day to day.
Consumer Scoring Model
Guess which score is normally the highest…yep the Consumer Score. The one you can easily get access to.
It makes us feel good, right? Yeah, right up until you apply for a mortgage and realize the score you thought you had was not the score we use when qualifying you for a mortgage.
I really wish I could give you a good idea of what the normal variance is but unfortunately there is no normal. In some cases they are very close, in others very different. It just depends on your own unique credit report.
Your Credit Report
Did you know you could get a copy of your credit report completely free?
And not through FreeCreditReport.com which actually isn’t free. To get a copy of your “free credit report” from this site you have to sign up for one of their products.
But there is a website authorized by Federal Law that does give you 100% completely free access to your credit report. Each credit bureau is required to give you a free copy of your report each year if you request it.
No Free Credit Score
Unfortunately a free credit report does not mean you get your credit score for free. Although AnnualCreditReport.com does provide you with the ability to pay to get your credit score, what’s the point!? You would only be getting your Consumer Score which we already pointed out doesn’t really help you know what creditors like mortgage companies or banks will use when considering whether to approve you for a loan.
I say skip it. Don’t pay to get your score. What matters most is what’s on your credit anyway.
Credit Score and MortgageBeing Mortgage Advisors we see all too well how much credit scores can impact the interest rate and therefore monthly payment on your mortgage. There is no hard and fast rule around exactly how much the rate will fluctuate based on credit but here is a sample of interest rates and discount points based on credit score for a purchase with a 20% down payment on a 30 year fixed mortgage:
|CREDIT SCORE||INTEREST RATE||DISCOUNT POINTS||APR||P&I PAYMENT|
So, what does this mean in monthly payments and closing costs?
For a $300,000 loan amount the difference in payment between a 620 credit score and 720 credit score is $1,679.91 and $1,564.94 or $114.97/mo! And, in this example would also cost an additional $1,125 at closing in the form of discount points.
Credit Score and Home Insurance
You may or may not realize that your homeowners insurance can also be impacted by your credit score.
I reached out to a friend, past client and insurance broker, Brody Leinweber to provide you with a similar example to show how credit score can impact your insurance rates based on a $250,000 coverage amount. Take a look:
|CREDIT SCORE||ANNUAL PREMIUM|
|less than 650||$2,000|
|greater than 800||$1,000|
Again, if we compare the bottom tier to the top tier we see a significant difference. In this case it is double, costing $1,000 more each year or $83.33/mo.
Credit Score and Credit Cards
ValuePenguin.com provides average credit card rates based on the type of credit card. As of July 2018 here is a breakdown of the rates offered:
|Cash Back Rewards||13.24%||22.99%|
Each year Experian creates a State of Credit report. In 2017 their report showed the average credit card balance for Americans was $6,354.
If we compare the low and high credit card rates based on this balance we can see that the annual interest would be $909.26 at 14.31% on the low side and $1,362.93 at 21.45% on the high side. This is a difference of $453.67 annually.
The Overall Impact
Factoring all of this together the impact is HUGE!
Mortgage: $115/mo and $1,125 at closing
Home Insurance: $83.33/mo
Credit Cards: $37.81/mo
TOTAL: Over $235/mo or $2,800 every year!
These are just a few ways credit can impact you life but consider these additional ways a low credit score can impact you:
- Higher auto loan rates
- Required/Increased deposits (rentals, utilities, etc.)
- Denied Job applications
- Cell phone plans
Understanding your credit so you can increase your credit score can provide some great financial and personal benefits. So you might be wondering how to boost your credit score.
There is a ton of information out there on how to “improve your credit score” or “repair your credit” but what they don’t tell you is that some of those strategies can actually hurt you when trying to buy a home!
We can help. If you plan to make a home purchase in the next 12 months or would just like to better understand how credit works you should attend our upcoming webinar…
Looking to Buy a Home?
Find out how much you qualkify for using a Home Purchase Qualifier Tool.
Citywide Home Loans and The Wynn Team do not provide homeowners insurance, credit cards or auto loans.