Your Credit Report: 5 Ways To Get a Lower Interest Rate

Credit scores range from the worst possible score of 300 to a perfect 850. The higher the score is, the less likely to default on a loan. Your credit score is determined by several factors such paying your bills on time, the length of your credit history, and how much money you owe. This sounds fairly simple, but there are a few things that you may be unaware of that could be hurting your credit score. Ultimately, bad credit and lower credit scores result in higher interest rate.

  • Late Payments: Payment history makes up 35% of your credit score. Failing to make your minimum payment could drop your credit score up to 100 points. Only 1 late payment can put you in a different class of customers, causing the interest rate on your mortgage to increase. However, a good record of on-time payments will help boost your score.
  • High Credit Card Balances: Another way to guarantee a drop in your credit score is to max out your credit cards. Aim to keep the balances on your credit cards no higher than 35 % of your credit line. Balances above 50 % will harm your credit. By keeping your balances low, statistics show that you are a better credit risk and have more self-control. This also means that consolidating all of your credit card debt into one account is probably a bad idea, especially if the new balance is close to your credit limit. This factor also affects a large portion of your credit score, about 30%.
  • Closing Credit Cards: An established credit history makes you a less risky borrower. Think twice about closing old accounts before applying for a loan. Closing out a 10-year-old credit card could take a bite out of your credit score because it is a way to reference a positive credit history. A longer credit history will increase your score. Make sure to consult with your loan officer before closing any accounts.
  • New Credit: Opening several lines of credit in a short period of time is considered abnormal behavior by credit agencies and it suggests that you might be more of a credit risk. This section of your credit score also quantifies the number of inquiries that have been made on your credit history within a six-month period. Each inquiry can cost from 2 to 10 points on a credit score, but the maximum number of inquiries that can reduce the score is 10. Eleven or more inquiries in a six-month period will have no further impact on your credit score.
  • Collections: In the past few years it has become more common for companies to turn over late payments, fees, or fines to collection agencies. This is common for unpaid medical bills, cable/internet/phone bills, or even parking tickets. If a collection agency reports that you were unable to pay an overdue bill, your credit rating could drop by 100 points or more.   

Your credit score is your business, make sure you know what it is!   You may request a copy  of your credit report free of charge once a year from each of the nationwide consumer credit reporting companies: Equifax, Experian and TransUnion.   For more information please contact your loan officer. Credit reports available at this web site: