FICO Score

The Hidden Cost of Instant Savings on Holiday Credit Cards

Tis the season to do shopping – and get bombarded with offers to open credit cards.

The deals are tempting, too. ”Open a charge card today” and save up to 20% on your purchase. Considering that the average Black Friday ticket was $343, that’s $68 saved per store.

For big-ticket items like televisions, the savings are even bigger.

But for people in the market for a new home – or looking to refinance – taking advantage of in-store savings could be a long-term money loser.

Every time you apply for a credit card, your credit score drops.

According to myFICO.com, “new credit” accounts for 85 out of 850 possible credit scoring points.  New credit is defined by such traits as:

• Number of recently opened accounts
• Number of recent credit inquiries
• Time since credit inquiry(s)
• Proportion of accounts that are recently opened to all open accounts

Shoppers with few open credit cards are more likely to see their scores drop that shoppers with many cards. 

Regardless, a credit score is worth protecting because of how mortgage rates are made.  A conventional mortgage applicant with 20% equity whose FICO is 720-739 will be offered rates 0.125% higher than a comparable applicant at 740.

• For 700-719, the rate increases by 0.375%
• For 680-699, the rate increases by 0.750%
• For 660-679, the rate increases by 1.250%

Having a low credit score can be expensive.

It is okay to take advantage of in-store savings during the holiday shopping season, but it’s also important to be aware of how your credit score may be affected.  

If you’re not applying for a mortgage in the next six months, you’ll likely be alright.  But, on the other hand, if you know you’ll need your FICO soon, consider whether saving 15 percent on a $343 ticket is worth the long-term cost of a higher mortgage rate.

Need more expert advice? Ask the team of Certified Mortgage Planning Specialists at Benchmark Mortgage.

FICO Score

Why An 800 Credit Score Doesn’t Really Matter

Since 2007, mortgage lenders have clamped down in many areas of underwriting, but none more so than in the area of credit scoring.

Minimum FICO levels are up 120 points or more and conforming mortgage lenders now levy large fees on borrowers whose scores are below 740.

Keeping your credit scores high is a worthwhile goal, but it’s not always easy to do – especially when you don’t know the ins-and-out of how the credit scoring system works.

The Wall Street Journal wrote a terrific piece on credit scoring this week. It’s full of helpful, relevant tips for home buyers, homeowners, and everyone else.

Aside from covering the five basic components of a credit score – shown at left - the piece provides insightful advice on credit-related topics including:

• The difference between a “hard inquiry” and a “soft inquiry”
• Why paying for your credit report is a foolish use of funds
• Why it doesn’t matter if you have an 800 FICO

The article also talks about the optimal balance a person should carry on their credit cards to get the biggest FICO boost.

Credit scores determine your mortgage rate.  Therefore, do what you can to keep your scores high. Follow the tips in the Wall Street Journal article and lean on public resources like myFICO.com.

Having good credit can be a real money-saver.  Month after month after month.

Need more expert advice? Ask the team of Certified Mortgage Planning Specialists at Benchmark Mortgage.

FICO Score

Simple Real Estate Definitions: FICO

The basis of most mortgage lending is credit scoring. In general, the higher a person’s credit score, the lower his offered mortgage interest rate.

Despite the many credit scoring models in use today, however, just 3 are relevant to American homeowners:

• The Equifax BEACON® score
• The Experian Fair Isaac Risk Model
• The TransUnion EMPIRICA®

Generically, these scoring models generate what are commonly known as “FICO” scores.

FICO scores are measurements of probability. The higher a person’s credit score, by definition, the less likely a person is to default on his home loan. This is one reason why credit scoring has added importance lately — mortgage lenders are very careful about what they’re lending and to whom.

Notably, minimum FICO thresholds have been added to all types of mortgage loans.

FICO scoring has 5 main components as listed above. Payment history and credit capacity are two of the largest pieces, but a myriad of other factors contribute to a credit score, too. For example, the longer your reported history of managing credit, the more favorably your credit score will respond.

This is one reason why closing a credit card can damage your credit score — it wipes out the “reported history”.

The myFICO.com website does a terrific job with credit education, explaining in plain language the ins-and-out of credit scoring and ways to boost your score. It also makes a free, 20-page PDF available for download.

Whether you’re a homeowner or lifetime renter — consider it required reading.

FICO Score

STOP! Before You Open That Store Charge Card To Save 15 Percent