If you pay attention to the credit score-related news (and who in the world wouldn’t 😉), you may have heard the rather encouraging announcement from FICO, creators of the FICO credit scoring system, that the average credit score has reached an all-time high: 700 for the first time in recorded history!
Higher credit scores can open the doors to some very attractive perks. This national improvement in credit scores could potentially signify some exciting changes, especially for first-time home buyers with credit scores at or above the national average. The reason … when you apply for a mortgage loan it’s guaranteed that your credit scores will be part of the underwriting process ...
Mortgage Perks with Higher Credit Scores
You likely are already well aware of the fact that earning better credit scores may be able to help you qualify for lower mortgage interest rates. It’s simple, the higher your credit scores the better your rates. Thankfully if your credit scores are currently at or above the national average then you will probably be in great shape whenever you apply for a mortgage loan.
According to the Loan Savings Calculator available at MyFICO.com, a 700 FICO credit score is a meaningful threshold or “rate tier” whenever you apply for a mortgage. That means someone with a score of 699 isn’t going to get as good of a deal as someone with a 700, or higher. So, how much can you really save with your higher score? As of July 2017 your mortgage interest rate options by FICO credit score looked like this…
|30-Year Fixed Mortgage|
|Loan Amount: $300,000|
|FICO Score||Interest Rate (National Avg.)||Monthly Payment||Total Interest|
|Good Credit: 700-759||3.806%||$1,399||$203,603|
|Fair Credit: 660-679||4.197%||$1,467||$227,949|
|Poor Credit: 620-639||5.173%||$1,642||$291,240|
Attaining and Maintaining Good Credit Scores Above the Average
Working hard to earn and keep good credit scores is wise at any time in your life because you’ll be borrowing money from the time you turn roughly 18 to 21 years old until you’re in your 60s. That credit lifecycle will be greater than 50 years. And as you can see from the above example, it’s cheaper to finance stuff when you’ve got good credit even if your scores are just a few points higher. We’re talking hundreds of thousands of dollars over your lifetime. It’s like picking the right mutual fund in your retirement account!
Even if you have already earned good credit scores, now is certainly no time to slack. Credit scores don’t have a memory so if your credit reports suddenly become less impressive your scores will follow suit. The good news is it’s actually very easy to maintain solid scores.
1. Check Your Credit Reports Regularly
You have the right to expect your credit reports to be accurate, but did you know that it is your responsibility to check those reports for accuracy and request corrections from the credit bureaus? If a derogatory mistake shows up on your credit reports, it could send your good credit scores in the wrong direction. So how often should you check? It’s my opinion that you should begin to check your credit reports monthly. There are plenty of ways to do so at no cost.
2. On-Time Payments Are a Must
It’s no surprise that the most important factors used to calculate your credit scores, whether they be the FICO or VantageScore brand, have to do with the presence or lack of negative information. If you have credit reports that are littered with late payments, it may be impossible to ever earn the good credit scores you desire. Use auto payment options to ensure your payments are all made on time.
3. Keep Credit Card Balances Low
Both FICO and VantageScore’s credit scoring models focus on your credit card balances and how those balances relate to your account limits. It is imperative to keep your credit card balances low (preferably paid in full each month) to keep your credit scores in good shape. If your balances begin to creep upward, then your credit scores may begin to slide in the opposite direction. Shoot for a balance-to-limit ratio of less than 10 percent. I know that’s a pretty low target, but it’s the best for your scores.