Having a good credit rating can save you thousands of dollars, because of the significant impact it has on the interest rates you will pay for loans. This is especially true when you’re looking at real estate mortgage loans. In some cases, it can even mean not getting the loan.
Understanding just how your credit score is established and what affect that score has in the credit process is an important step in managing it. Credit reports, generated by credit reporting agencies, are used by lenders to determine your financial reliability. These reports are a summary of your past and present financial activity. They give lenders an idea of how you handle your financial responsibilities through past and present payment histories. This information is analyzed and a credit score is calculated based on the information contained within the report. Many seemingly insignificant activities can have such negative impact on this credit score.
Some of the activities that affect the credit score are payment history, amount of outstanding credit to high credit limits, collection accounts and inquiries.
Inquiries are a big one. Entering your Social Security number on the Internet for credit offers for what seem to be too-good-to-be-true rates is a big one. Sometimes shopping on the Internet is a great way to make purchases if you can’t find something locally. In the case of real estate mortgages, I would just not recommend it. It’s not such a good deal when your credit score is impacted by a bunch of inquiries in such a short period. In the end your rate will not be any better than you can get at your community bank, and the fees will only be more.
Another major item that affects credit scores is carrying high balances on credit cards. Even if you pay off the balance each month, which is always the best practice, if your balance exceeds 50 percent of the high credit limit, it is negatively affecting your score.
In conclusion, if you’re looking to refinance or purchase a home and have questions regarding the process or your credit score, please come see me at the bank. Rates remain at record lows and there is no better time to take advantage of the opportunity.Information provided by Kendall S. Kerns, senior vice president American State Bank, 113 S. John Wayne Drive, 462-5090.