What Does Your Credit Score Mean?

What Does Your Credit Score Mean?

In a previous blog, I discussed the importance of financial literacy education as a crucial tool for helping young adults become future homeowners and increase their economic well-being over time. In this blog, I will discuss how one’s credit score can affect the ability to obtain loans, and the cost of those loans.

A credit score significantly determines the terms of your loans and whether you can afford these loans or not. Credit scores are used in evaluating a range of loans such as personal loans, car loans, and home mortgages, so credit scores are equally important for both renters and homeowners.

Your credit score will determine how much you can borrow and the length of your repayment. The higher the credit score, the better the rate on your loan, and the lower the monthly payment.

Because a credit score is a critical determinant of your ability to secure a loan at a low rate, it is important to understand what factors determine your credit score. Knowing what determines your credit score will then help you plan for and work towards improving your credit score. This is all part gaining financial literacy.

Factors Affecting FICO Credit Score

FICO scores range from 300 to 850 with the higher number being the better score and the lower figure representing a higher risk for the loan. When you take a loan, the bank has to assess the possibility of repayment and determine the risk for the loan. Factors that affect the scores are credit card debt, student loan debt, payment history, bankruptcy and foreclosures. Personal or demographic information such as age, race, address, marital status, income and employment do not affect credit scores. Typically, Equifax, Experian, and Transunion run your score and of the three scores, the middle score is what consumers go by.

Data from your credit report goes into five major categories that make up a FICO score. The scoring model evaluates some factors more heavily, such as debt owed and payment history.

Payment history: (35 percent) — Your account payment information, including any delinquencies and public records. Your ability to make payments on time.

Amounts owed: (30 percent) — How much you owe on your accounts. The amount of available credit you are using on revolving accounts is heavily weighted.

Length of credit history: (15 percent) — How long ago you opened accounts and time since account opened.

Types of credit used: (10 percent) — The mix of accounts you have, such as revolving and installment. This would include credit card debt as well as student loans or mortgage payments.

New credit: (10 percent) — Your pursuit of new credit, including credit inquiries and number of recently opened accounts. This includes secured and unsecured credit cards.

The Urban Institute provides a monthly chart book on housing finance. This chart shows Fannie Mae’s loan level price adjustments LLPAs, which are, expressed as upfront charges. The higher the credit score the lower percentage of the charge assessed. A higher loan-to-value will increase the percentage of payment but we can see the impact of the lower credit score pushing up the charges assessed. “Simply put, LLPAs are added charges for certain risk factors on a mortgage. They are high loan-to-value (LTV), low credit scores, cash out, investment property, etc. They are calculated and assessed as a percentage of the loan amount. For example, if the loan amount is $100,000 and the total LLPAs equals 0.25%, the charge would equal $250.” Posted by the mortgage calculator.

Improvements in the Credit Score Models

It would be significant to consumers if monthly rent payments and utilities were included in their FICO scores. Many renters may be paying these bills in a timely fashion but they would not appear on your credit report. While some credit agencies may have rent payments as a part of their credit scores, there is no guarantee they are included in the scoring figure because rent data is not standardized. However adding that to the credit reports seems to be the trend moving forward.

The Vantage score 3.0 is a newer model used to run credit reports. This newer system is supposed to have a more consistent credit-scoring model. The Vantage system is helpful to those who do not have much, or have very little credit history. The most recent Vantage system is the 4.0 system, which is supposed to give lenders a deeper look into a consumer’s credit history. It also does not hold consumers to the usual standard of FICO scores giving them some leniency on medical accounts and tax liens for example. For mortgage, underwriting lenders Fannie and Freddie are more likely to use traditional FICO scores.

How to Improve Your Credit Score

Paying off credit cards in a timely fashion as well as paying more than the monthly minimum is helpful. Some consumers apply for 0% annual percentage yield (APR) balance transfers to save money on interest paid over that period. Those who have credit card debt not only want to maintain their monthly payments on time but they also want to make sure they are not using more than 20-30% of the credit line limit. Some financial consultants recommend using even less between 10-20%, which would benefit your credit score and reduce your monthly payments based on your APR.

Keeping track of your debt is paramount. One can pay down the debt as well. Some consumers are using tax returns to pay down debt.

Paying your school loans on time will also be beneficial for your credit scores. Most consumers who have student loans also are likely to have new lines of credit and still trying to establish credit. School loans make up a large portion of debt held by many Americans. Based on NAR 2017 Student Loan Debt and Housing survey data, in some instances, debt levels can reach over $100,000, which would take decades to pay back. Based also on NAR survey data, 32 percent of respondents from a national sample indicated that they defaulted or forbore on their student loans. This would not help to increase and improve your credit score.

Look at this article also on how to improve your credit score

You can also check your credit scores free annually so knowing your score is helpful for how you plan your future moves. While some states may have higher credit scores than others, credit scores are driven by individuals and depend on several factors. Some of those factors are income, where you live, poverty levels, and financial literacy. Being on top of your credit will keep you prepared for future financial decisions. Some consumers turn to credit repair resources such as LAJ Financial Solutions, Credit Saint, or Lexington Law, that can help remove blemishes from your credit report. Also learning how to leverage your credit will expand consumer’s options on future investments and strategies. Some homeowners can leverage their credit to obtain a FHA or VA loan to get a secondary mortgage.

The Top Energy Efficient Home Trends That Home Buyers Want in 2019

The Top Energy Efficient Home Trends That Home Buyers Want in 2019

Article Submitted by Fixr.com

As the cost of energy continues to rise, many home buyers today are looking for homes that are going to be easier and less expensive to run long term. I’ts important to know the trends to look for, whether you’re helping a seller update their home prior to selling or you want to keep an eye out for the perfect property for a buyer. Not only would following these trends allow you to better advise sellers, it also can help you ecuate buyers on to what to look for.

Each year, the home remodeling site Fixr polls industry experts and leaders in their field to help determine some of the top trends in the home improvement industry through their Energy Efficient Home Design Trends report.

Here are some of the most relevant findings to help you maximize your clients’ potential when buying or selling a home.

Energy Star Dryers

One key trend to watch for in properties is an Energy Star rated dryer. Of all the various appliances with the Energy Star label, experts felt that the dryer made the biggest change in energy usage when switching to a more efficient model. This is due in part to the fact that dryers use nearly as much electricity as central air conditioning.

Home shoppers today are focusing more on the laundry room, as well as where it’s located and what it contains more so than they ever have before. An energy efficient dryer can have a big impact on monthly energy budgets. 

Heat Pumps

When it comes to heating a home, the heat pump is the most recommended method of heating for providing consistent heat and energy savings. Heat pumps work by exchanging outside air for inside air. It extracts the heat energy from the air outside–even in cold weather–and transfers it indoors.

An electric heat pump is 50 percent more efficient that other forms of heating. It’s also the most frequently installed energy efficient heating system in homes today.

Day Lighting for the Kitchen and Living Room

While experts agree that the best way to save money on electric bills without reducing the amount of usage is to use LED lights, there are still important things to consider when looking at a home for sale.  

Day lighting is an important component of reducing electricity. This has to do with how much natural light a room gets. The kitchen and living room are two spaces that use the most electricity. As such, it makes sense that home buyers may want to opt for homes that have sufficient natural light in these areas either through windows or skylights.

 

Tankless Water Heaters

While the heat pump is the most popular way to heat a home, a tankless water heater is the most popular method of heating water. Tankless heaters are installed inside the walls of a home, and heat the water as it’s being used. This is in contrast to a heater that is constantly maintaining the temperature of any gallons of water at a time. Households that use this method of heating water can expect to save $100 a year on their energy bills.

Heat pumps and tankless heaters are both popular, but hybrid heat pump hot water heaters tend not to perform as well universally. Tankless heaters can be installed in more places, and perform better in cold-weather climates in general.

Low Flow Fixtures in Full Bathrooms 

Households use a lot of water each day when they aren’t using low flow fixtures to try to restrict this usage. Experts felt the place that made the biggest difference when installing these items is in full bathrooms.

This makes sense, as the full bathroom will include a tub and shower, as well as a sink and toilet. Installing low flow fixtures in full bathrooms can help reduce the load on the water supply.

Solar Panels 

If home buyers are looking at homes with renewable energy sources, experts say that solar panels are by far the most popular method. Renewable energy is increasing everywhere, with millennial homeowners leading the biggest push into this sector. Experts also reported that millennials were the most likely to invest in cleaner energy sources, with Gen X taking second place.

Saving Energy Means Saving Money and the Environment

 

Homeowners and home buyers today are motivated to make energy-efficient changes in their homes due to the potential to save money as well as energy. More people generally aware of a need to protect the environment so it makes sense that protection coming from within the home ranks second place.

Homeowners and home buyers that want to maximize their potential in both these areas should seriously consider paying attention to these and other important trends in energy savings. While individually each of these factors may not save much, added together, they can have a significant impact on both the homeowner’s wallet, and their overall comfort inside the home.

Help your clients by pointing out these trends ,and how they can make them work to get better results for everyone involved.

To learn about the cost of household remodeling projects, visit the Cost Guides.