Why Credit score Matters?
Among the various components to get approved for a mortgage, credit score is one of the most well known components. The credit score is a three digit score between the ranges 300-900. As many of you know a credit report/score is used for various reasons including to attest to one's financial responsibility. There are two types of inquiries when one's credit is pulled. A hard inquiry and a soft inquiry. A soft inquiry is typically when the individual pulls a copy for themselves or companies pull it to make updates on to the report or their systems (i.e. telecommunication corporations). When a bank or a lender pulls a credit report it is known as a hard inquiry. A hard inquiry occurs when the individual applies for any type of borrowing, such as applying for a new credit card, personal line of credit, and mortgages as well. Oftentimes mortgages are applied at multiple institutions, as a result, all the inquiries are grouped together as one so it only counts as one credit inquiry when they are performed within a short time period. On a hard inquiry, lenders can review your debt load, and credit utilization. Once approved and payments commence the inquiry will show on your report, most major banks do report however not all lenders report payments to the credit bureaus.
To help improve your score, here are a few tips.
1) Make payments on time and don't miss payments
2) Watch your credit utilization, avoid spending more than 30% of your total available credit (max. 3000, if total credit availability is 10,000)
3) Limit hard inquiries. Only apply for credit cards you know you will use. Oftentimes the $20 you will save on a jacket may not be worth it if you only intend to use the card once and then throw it out, as the hard inquiry will remain on your report for at least 2 years.
I hope this helps you explain credit scores to your clients, and feel free to call, text or email me with any of your questions.