How Credit Works
• FICO® scores are the numerical summary of your credit rating.
• They range from 300-850…higher is better!
• A higher score can mean lower interest rates.
Improving Your FICO Credit Score
Did you know that nearly 40% of all borrowers have a credit score that is too low to obtain traditional mortgage financing? The good news is that Synergy One offers S1 FinFit a free finance app that provides a roadmap to help you reach your financial and lifestyle goals, no matter how big or small! It provides free credit monitoring and tracks your spending. This tool can be useful in helping a buyer qualify for financing or, equally as important, improve their credit score to where they can save on their rate and/or costs (i.e. A 660 FICO score vs. 740 score can be .5% higher in rate, or $5,000 in additional costs).
FICO scores are calculated based on your rating in five general categories:
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Amount Owed on Current Accounts Tips
Keep balances low and credit limits high on credit cards and other revolving debts. High outstanding debt can adversely affect a credit score. Ideally, you want your credit balances to be 1/3 or less of your high limit. If your balances are over 50% of your credit limit, your score will certainly suffer. DO NOT close unused credit cards as a short-term strategy to raise your score.
Length of Credit History Tips
If you have had credit for only a short time, do not open a lot of new accounts too rapidly. New accounts will lower your average account age, which will have a larger effect on your score if you don’t have a lot of other credit information. Also, rapid account buildup can look risky if you are a new credit user.
New Credit Tips
Do your rate shopping for a given loan within a focused period of time. FICO scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur. If you are shopping for a large ticket item like a home mortgage, multiple credit inquiries within a 2-4 week period will be counted as only one inquiry. Don’t be
fooled by uninformed (or intentionally misleading) lenders that may tell you not to allow other lenders to pull your credit because it will ‘hurt your score’.
Re-establish your credit history if you have had problems. Opening new accounts responsibly and paying them off on time will raise your credit score over the long term. Note that it’s OK to request and check your own credit report. This action will not affect your score as long as you order your credit report directly from the credit reporting agency, or through an organization authorized to provide credit reports to consumers.
Type of Credit Used Tips
Have credit cards, but manage them responsibly. In general, having credit cards and installment loans (and making timely payments) will raise your credit score. Someone with no credit cards, for example, tends to be viewed as a higher risk than someone who has managed credit cards responsibly. Note that closing an account doesn’t make the account’s credit report history go away.
A closed account will still show up on your credit report, and may be considered by the scoring model. You can learn more about FICO scores by visiting: www.myFICO.com
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