Realtor® to Buyers and Sellers in Encino | Sherman Oaks | Studio City | Van Nuys | Tarzana

The Basics of your Credit Score

Unless you plan on paying cash for that Encino mansion, you’re probably going to need a loan.  While income and bank statements are important, the ability to get the best interest rate will rely heavily on your credit score. What’s yours? Nevermind – for the sake of providing you with this information, I don’t really need to know.  Moving on… There are five basic areas upon which your credit score is based
  • Payment History (35%)
  • Amounts Owed (30%)
  • Length of Credit History (15%)
  • New Credit (10%)
  • Types of Credit Used (10%)
What does that mean?  It’s really not as complicated as you might think.

Payment History – 35%

In a nutshell, have you paid your bills on time?  The occasional late payment (“I was on vacation for a month and couldn’t pay” is generally my excuse when I call the credit card company) won’t really affect you.  It’s more about sending in late payments or skipping payments on a regular basis.  If you can avoid it, don’t do it!  Your laziness is costing you big time on your credit score!

Amounts Owed – 30%

You have a certain amount of credit available to you.  Count up your credit lines (ie. one credit card might have a $5,000 max and another might have a $10,000 max, which equals a total of $15,000 available credit).  Once you’ve counted them all up, count up how much you owe all together (are you paying off $4,000 of expenses on that card with the $5,000 max?).  The lower the amount that you owe, the better.  If banks see that you have lots of outstanding debt, even if you pay all your bills on time, it will lower your credit score.  Try to keep below the 10% mark ($1,500 owed on the $15,000 total credit lines).

Length of Credit History -15%

This one’s pretty simple – don’t close old credit accounts.  Have a card that you got in college and hardly ever use? Put it in a drawer, but keep the card active.  If you close the account, you might actually be harming your credit score.

New Credit – 10%

Try not to open new accounts or have too many credit checks run.  Each ping and new line of credit piles up, and the more new credit your have in a short period of time, the more it impacts your score.

Types of Credit Used – 10%

Just like investing, you want to diversify.  If all your credit is in one or two places, it’s bad.  Ideally, you’ll have a mixture of loans (property, car), credit cards, store cards, utility bills, etc. that are all being paid on time! If you’re thinking about buying something soon, this is the time to check on your credit and talk to a specialist if you find that it’s low.  Contact me and I’ll connect you to the right people.  It’s possible to raise your credit score quite a bit in a short period of time by following the advise of a credit specialist!  

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