How A High Credit Score Could Save You Money
Lets say, for example, you plan to get a 30-year fixed-rate mortgage for $300,000. Heres what your loan could look like if you had a credit rating in the 760 to 850 range, compared with one in the 620 to 639 range. Not only would your monthly payment be lower, but you could save $95,680 on interest over the life of the loan.
| 760-850 credit score |
|---|
1 APRs are based on national averages and do not reflect Bank of Americas rates. Source: myFICO.com, October 2021.
This example is provided for comparison purposes only and does not constitute a commitment to lend nor is intended to guarantee that you currently qualify for the example APRs above.
What Determines Credit Scores
Scoring companies and models may be different, but scores have a few things in common. For starters, according to the CFPB, theyâre all calculated based on data from .
According to the CFPB, scoring models might incorporate the following information from your reports:
Keep in mind that past bankruptcies, foreclosures and collections activity may also figure into your credit score. And the CFPB says those things can sometimes affect scores for 10 years or longer.
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How To Calculate Your Utilization Rate
You can calculate your credit utilization ratio by dividing your credit card’s balance by its credit limit. Credit scoring models use the balance amounts that have been reported to the credit bureaus and added to your credit reports, which is where you should look as well.
The balance you see on your credit report may be different from your account’s current balance because credit card companies often send updates to the credit bureaus monthlyaround the end of your statement period. This is also why you can have a high utilization rate even if you pay your bill in full each month, and why paying down your balance early may help your credit scores.
Figuring out your credit utilization rate for one credit card is a simple taskjust divide the card’s balance by its credit limit and multiply by 100 to convert to a percent. If you have more than one credit card, you’ll add up the balances and credit limits on all your cards to find your overall credit utilization rate.
For example, if you have two credit cards with $5,000 limits, you have a total credit limit of $10,000. If one card has a $5,000 balance on your credit report and the other has a $0 balance, your overall utilization rate is 50%$5,000 divided by $10,000.
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Dont Ask For More Credit Too Soon
Asking for a limit rise within 6 months of receiving a new credit card can indicate financialdifficulties, and lenders may be less willing to give you more credit. Waiting for your lender or bankto automatically increase your credit limit could be the best option, as it avoids making a request thatmight negatively impact your credit score.
My Employer Can See My Credit Score
False. When it comes to applying for a new job, people often think prospective employers can see their credit score. While they can pull your credit report, the type of credit report that employers have access to does not include your actual credit score.
“It’s not the same type of credit report that your lenders can see,” Ulzheimer says.
What employers do see when they run a credit check is your debt and payment history so they can look for any signs of financial distress.
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Using Home Equity Lines Of Credit To Invest
Some people borrow money from a home equity line of credit to put into investments. Before investing this way, determine if you can tolerate the amount of risk.
The risks could include a rise in interest rates on your home equity line of credit and a decline in your investments. This could put pressure on your ability to repay the money you borrowed.
What Types Of Loans Can I Obtain
Depending on your current financial needs and the amount you want to take out, you may qualify for a installment loan, a personal loan, or a payday lending option.
The first option is suitable for the situation when a borrower wants to have a fixed monthly payment over several months. This way you obtain a five hundred dollar loan direct lender and pay the debt off in equal monthly installments or parts until the whole sum is returned.
A personal loan is issued over a longer period of up to several years. Generally, this is a larger sum needed to cover big-picture purchases or overdue bills.
Getting a payday loan, guaranteed repayment term is very short so the whole lump sum should be returned on the next salary day together with the interest and any additional fees.
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What Are Todays Mortgage Rates
When youre shopping for a mortgage, you should really shop for a mortgage. Thankfully, the credit bureaus make this less frightening by providing credit score protection to mortgage rate shoppers nationwide. You wont affect your FICO when youre only after lower mortgage rates.
Get todays live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.
Lender Networks Offer Personal Loans For Bad Credit And Low Income
Several online networks offer personal loans for bad credit and low income. You can submit your loan request to them without fear of harming your already bad credit score or triggering fees. If you meet their prequalification requirements, theyll share your request with their direct lenders to get you a loan offer.
Unsecured personal loans require some form of income, but it need not be job earnings. Required minimum distributions from retirement accounts, Social Security benefits, disability income, and other sources may suffice. By spreading out your payments, you may be able to afford a personal loan without busting your monthly budget.
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Pros And Cons Of Refinancing A Personal Loan
| Pros | Cons |
|---|---|
|
Lower interest rates: Depending on your credit, the lender and market conditions, you could snag a lower rate. Choose your loan term: You can choose a loan with a longer or shorter loan term. The former would result in a lower monthly payment, while the latter would result in lower interest paid overall. Fixed interest rates: Switching from a variable interest rate debt to a fixed interest rate loan allows you to plan your budget around a fixed monthly payment. |
Additional fees: Taking out a new loan or line of credit can come with added fees, like an origination fee or balance transfer fee. These can increase the total cost of the debt. You may also be penalized for repaying your original loan early if the terms include a prepayment penalty. Higher interest costs: If youre struggling to make payments on your loan, you may find it helpful to refinance and get a lower monthly payment. However, extending your term often means that youll pay more in interest over time. Qualifying can be difficult: If youre struggling financially, qualifying for a new loan or line of credit can be difficult, much less one with more favorable terms. |
Understanding Your Credit Card Company
When you owe a large sum of money to a credit card company, it is easy to begin to fear talking to them. Perhaps people think they’re going to get yelled at, shamed about the situation, or possibly penalized. The reality is that are in business to make a profit, and their biggest profit is made from charging interest to people with unpaid balances. The bigger the balance, the more money the credit card company is able to make. In other words, if you are carrying a large balance, you are one of their best customers. The credit card company should love you and want you to stick around to keep paying interest. This positioning is something you can use in your favor.
Most credit card companies don’t want to lose you or your balance, especially if you are paying a rate that’s double or triple the historical rate of return in the stock market. In fact, many credit card companies will go to great lengths to keep you happy and keep you spending, lest they go out of business. This fact is your most important piece of leverage when it comes to getting your APR lowered.
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How To Get A Home Equity Line Of Credit
The process of getting a HELOC is similar to that of a purchase or refinance mortgage. Youll provide some of the same documentation and demonstrate that youre creditworthy. Here are the steps youll follow:
Determine whether you have sufficient equity, using a HELOC calculator.
Once you have an idea of what you can borrow, shop HELOC lenders.
Gather the necessary documentation before you apply so the process will go smoothly.
Once you have pulled together your documentation and selected a lender, apply for the HELOC.
Youll receive disclosure documents. Read them carefully and ask the lender questions. Make sure the HELOC will fit your needs. For example, does it require you to borrow thousands of dollars upfront ? Do you have to open a separate bank account to get the best rate on the HELOC?
The underwriting process can take hours to weeks, and may involve getting an appraisal to confirm the homes value.
The final step is the loan closing, when you sign paperwork and the line of credit becomes available.
Soft And Hard Credit Checks 10%
A soft check occurs when you check your credit score, or when anyone else reviews your credit history for non-lending purposes. It does not negatively affect your credit score.
A hard check, on the other hand, occurs every time you apply for a credit card or loan. Having too many hard checks in your credit history during a short period of time can negatively affect your credit score . A large number of applications for credit products can signal financial difficulty to your creditors and make them suspect you of credit shopping.
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Too Much Credit In Use
Another 30% of the FICO score is based on the amount you owe as a percentage of the credit you have available to you, such as the limits on your credit cards. Having too high a percentage may mean that you are overextended and could have trouble repaying your debts in the future. This is often referred to as your .
Dont Be Afraid Of A Fresh Start
Consult a credit counsellor before engaging in bankruptcy proceedingssuch a move can damage your credit for seven years and very few creditors will lend to you during that time. However, if you do take this drastic step, know that you can rebuild your credit with a secured card. This is a credit card requiring an upfront deposit that makes up your credit balance, but still gets reported to credit bureaus to help you re-establish your credit and eventually go back to an unsecured card.
Have a credit-related question that we didnt answer in this guide? Leave us a comment below or and well do our best to answer any inquiry you might have about credit scores, reports, ratings, and more.
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What Rate Shopping Means For Your Credit
Many are forgiving when it comes to borrowers who are rate shoppingthey don’t treat all inquiries the same. In fact, mortgage, auto, and student loan inquiries receive special treatment because credit scorers realize that you are looking for the best ratenot trying to apply for several mortgages, auto, or student loans. The exact impact of multiple loan inquiries all depends on the credit scoring model that’s used.
First, inquiries from these types of lenders don’t affect your credit score for the first 30 days after they are made. Your credit score won’t drop because of the loan application and it won’t make it harder for you to get approved.
Wells Fargo Credit Score Standards
760+, ExcellentYou generally qualify for the best rates, depending on debt-to-income ratio and collateral value.
700-759, GoodYou typically qualify for credit, depending on DTI and collateral value, but may not get the best rates.
621-699, FairYou may have more difficulty obtaining credit, and will likely pay higher rates for it.
620 & below, PoorYou may have difficulty obtaining unsecured credit.
No credit scoreYou may not have built up enough credit to calculate a score, or your credit has been inactive for some time.
If you are thinking about borrowing, nows a good time to assess your complete financial situation to see where you stand financially. Credit is just one of the factors lenders look for when they review credit applications. Learn the 5 Cs of Credit.
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What Does A Bad Credit Score Mean To You
Whether you know it or not, your credit rating can have an impact on your financial life. Thats true even if you dont have much debt. So it could really pay to know what your credit score is. That way, you know where you stand, and can take some steps to improve it.
A poor credit rating could limit your eligibility for a mortgage, loan or credit card. Youre also likely to be charged a higher interest rate and be restricted to a lower credit limit.
So it really could pay to do everything possible to improve your credit score.
If you have a very poor credit score, you could find it a bit more challenging to get a mobile phone contract, household utility or internet provider. You could also find it harder to be approved for a mortgage, credit card or personal loan since companies use your credit score to decide how reliable you are when it comes to paying your bills.
When it comes to your credit rating, it really could pay off to know the score. So take the time to find out your credit score and credit history. A good place to start is The truth about your credit rating: Seven common myths busted.
And if you want the bottom line on average and good credit scores, have a look at What is a good or average credit score.
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Hard Hits Versus Soft Hits
Hard hits are credit checks that appear in your credit report and count toward your credit score. Anyone who views your credit report will see these inquiries.
Examples of hard hits include:
- an application for a credit card
- some rental applications
- some employment applications
Soft hits are credit checks that appear in your credit report but only you can see them. These credit checks don’t affect your credit score in any way.
Examples of soft hits include:
- requesting your own credit report
- businesses asking for your credit report to update their records about an existing account you have with them
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What To Remember When You Are Rate Shopping
If you need a loan, do your rate shopping within a focused period such as 30 days. 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 the inquiries occur.
When you look for new credit, only apply for and open new credit accounts as needed. And before you apply, it’s good practice to review your credit report and FICO Scores to know where you stand. Viewing our own information will not affect your FICO Scores.
As a general rule, it is OK to apply for credit when needed. Be mindful of this information so you can start the credit-seeking process with more confidence.
Estimate your FICO Score range
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How Can I Tell Whats Hurting My Scores
The easiest way to understand what is currently impacting your credit scores the most is to pay close attention to the risk factors you received with your score.
If you havent already done so, you can request a free FICO score directly from Experian. It will come with a list of the factors that are affecting you the most at the time your score was calculated.
Addressing those factors will help you improve all your scores. For example, if your risk factors state that your balances are too high on revolving accounts, youll know that paying down your credit card balances could help increase your scores.
Thanks for asking.
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Mortgage Credit Pulls Vs Credit Card Inquiries
But a hard inquiry does mean youre searching for additional credit. Statistically, youre more likely to have debt problems and default on financial obligations when you increase your available credit. This is especially true if youre maxed out or carrying credit card balances and looking for more.
Understanding this, it makes sense that your credit scores drop when you go applying for new credit cards or charge cards. Fortunately, credit bureaus have learned that mortgage shopping behavior does not carry the same risks and they no longer treat a slew of mortgage inquiries the same way.
If you allow multiple mortgage companies to check your credit report within a limited period of time, all those inquiries will be treated as a single inquiry. That time period depends on the FICO system the lender uses. It can range from 14 to 45 days.