Good Credit For New Jersey Mortgage Approval Isn’t Rocket Science

Your FICO credit score  is the single biggest factor in determining whether New Jersey borrowers get the best rates for mortgages, loans and credit cards.  This score gives lenders an idea of how well you pay bills, live within your means and manage your debt.

If your score is 740 or above, you’ll get the best rates. Below that, it’s a sliding scale. Above 740, your rates can’t get much lower, so don’t sweat it.

The FICO score might seem like some magic potion, but not so.  It is a formula.  Not rocket science. It’s paying bills on time and handling credit wisely.  Here’s what makes up the formula:

• 35% – Paying Bills On Time
• 30% – How Much You Owe and How Much Credit You Have
• 15%  – How Long You’ve Had the Accounts
• 10%  - No New Accounts
• 10%  - Variety of Accounts

And What Is Your Credit Score?

Some people have no idea.  You should know what it is.  You can get your credit report FREE once per year from:  www.annualcreditreport.com.    This is a legitimate source for a free copy of your report – authorized by the Federal Trade Commission.  Here you can pick up your report from the 3 major credit bureas – Equifax, Experian and Trans Union.  You will be able to print a copy.

Here’s How to Maintain a Great Score

Pay bills on time.  If you run a busy life and tend to easily forget, use automated bill payment – either via your bank where you have checking and or directly online with your creditors.

Keep credit card balances at no more than 40% of the credit limit.  Less is better.  If you’re trying to improve your credit by paying down debt, first pay down the cards with the highest balance/credit limit ratios.  If you are one of the many who use one credit card and keep the rest in a drawer, this a bad plan if that one card is maxed out.

Be careful when deciding to close accounts.  Don’t get so angry at your credit card company about raising your rate or charging a fee that you fail to act in your own best interests.  Closing credit accounts might harm YOU, not the bank.  The bank could care less if you close the account, especially if your account wasn’t a profitable account for the bank.  That “I’ll show them” attitude of closing the account might lower your score.

Here’s an example:  You have 3 credit cards.  The credit limits are $5,000, $7,000, and $15,000.  You owe a total of $9,000.  You are using only 33% of your available credit.  You receive a notice that the rate on the $15,000 balance card is increasing by 2%.  You decide to close it.  Now, you owe $9,000 and your total available credit is only $12,000.  Your debt is now 75% of your available credit.  Expect your credit scores to soar down as soon as this info hits the credit bureaus.

Be especially careful about closing old, established accounts.  You get brownie points for these.  Don’t let accounts sit dormant for too long.  The bank will close the account.  Use the card to buy small items like gas and pay the bill when it comes.

Refrain from opening new accounts, especially if you plan to apply for a mortgage.

Have a variety of credit.  Credit cards, loans, mortgage, car note, etc.

There you have it.  A lot of it is common sense.  But some things aren’t.  Many consumers think the ONLY factor in having a good score is paying bills on time.  Fact is, it is possible to pay everything on time and have a score of 620.  I see it often.

Credit is more important than it ever has been.  Lending is tight.  Print this and save it.  Got questions.  Give me call.

Until my next post . . .

Tagged as: Credit cards, Debt, FICO, Mortgage