Your credit scores usually determine the price you pay for your money (your mortgages, your auto loans and leases, your credit cards, business loans, etc.).
Perhaps the most significant part of your credit report is your credit score. Credit scores range from 350 to 850, with 850 being the best possible credit score that you could receive, and 350 being the worst possible credit score. There are five factors that determine your credit score and your personal payment history makes up more than one third of your total score.
Your Payment History – 35% impact on your credit score. Paying debt on time and in full has a positive impact. Late payments, judgments, charge-offs, collection accounts and bankruptcies have a negative impact. One of the most important issues as far as payment history is whether or not you have had any late mortgage payments in the last 12 months. Timely mortgage payments are weighted heavily by the scoring systems and are one of the most vital requirements that lenders look for when evaluating your credit history.
Many times a single late mortgage payment within the last 12 months can hold up your file or spell the difference between the best interest rate and the next credit level. This is not to say that your mortgage is the only debt you should pay on time. Your payment history on other debts (car payments, credit cards, etc.) is also given a lot of weight.
The credit scoring systems evaluate how many late payments you have had and whether they were 30, 60 or 90 days late, or whether they are currently in default, with default being the worst situation. Additionally the systems look at whether the late payments were consecutive. If you only have one or two minor late payments on your report with no other derogatory marks, your score will not be terribly affected, but you will have a tough time getting over the critical 700 level.
Bankruptcies and judgments are another major area of importance. If you have had any bankruptcies within the last 7 years, it will seriously affect your ability to borrow or establish new credit accounts. Additionally, if you have had any judgments within the last several years, it is very important that you pay off the judgment and get a “satisfaction of judgment” from the court.
Any unsatisfied or recent judgments will make a bad dent in your credit scores and adversely affect your ability to borrow. Usually, judgments and liens must be paid prior to the closing. However, in some cases, they can be paid out of the loan proceeds.
Here are four practical steps that you can implement to improve your credit score in the area of “Payments”:
- Make all your payments on time.
- Past dues on any account will destroy your score – bring your delinquent accounts current immediately. A 30 day late payment one month ago is worse than a 90 day late payment three years ago.
- Pay your bills before they go to a collection agency.
- Check your credit report for accuracy on a regular basis; and make sure that disputed bills are not negatively affecting your credit scores.
Whether you are looking for a car loan, personal loan, business loan, credit card or mortgage, your credit score determines if a lender deems you worthy. There are some great mortgage programs for home loans; even luxury home builders have low down-payment options readily available. Our new houses in Florida, for instance have several 100% financing programs available for first-time buyers and veterans. Ready to explore monthly payment scenarios? Click here for our mortgage calculator.