What You Need to Know About Credit Scores

By October 19, 2017 November 6th, 2017 Products, Security

At Capitol Bank, we want to make sure that you have all the information you need to effectively manage your financial life. Credit scores are a key component.

Why they are important

Your credit scores are important to know because they are used by lenders to evaluate your potential risk when you borrow money. The whole idea is that the higher your credit score, the less likely you will be to default on your loans and so you are eligible for lower rates and a wider variety of loans.

There are 3 national credit reporting agencies in the U.S., TransUnion, Equifax, and Experian. Each of these agencies use the FICO credit scoring model. The FICO scores range from 300-850, with 723 being the median FICO score of all Americans. It is possible that your score is different through each agency because the credit history each one has for you may be different. Also, each company uses its own formulas for calculating credit scores. For mortgage loans, we look at all 3 scores, but for a credit card or auto loan, only one may be pulled.

What makes up your credit score

Your payment history

35% of your score – late payments obviously have a negative affect. Collections are worse than late payments and bankruptcy is the worst of all. Credit reporting companies can report accurate negative information for seven years and bankruptcy for 10 years.

How much you owe

30% of your score – The more you owe compared to your limit, the lower your score will be. People with the highest scores use credit sparingly and keep their balances low.

Length of credit history

15% of your score – a longer history will increase your score. Keep your oldest credit cards open even if you don’t use them.

New Credit

10% of your score – the scores distinguish between a search for a single type loan and a search for different types of credit. For example, if you need a mortgage loan, do your rate shopping over a 30 day time frame to avoid lowering your scores.

Mix of credit

10% of your score - the best scores have a mix of credit cards, mortgages, and car loans.

A good credit score and its benefits

The definition of a “good” score can change from time to time, but currently anything above 740 almost guarantees the best rate, between 700 and 740 doesn’t necessarily guarantee the best rate, 620-699 will definitely result in higher rates, and below 620 will likely result in getting declined. For example, with a credit score of 695, your rate would probably be a quarter percent higher than if you had a score of 740 or above. This quarter percent difference is going to cost you almost $30 per month and almost $10,700 over the life of a 30 year loan.

We have seen credit scores drop by over 100 points because of a new collection. Even a collection as small as $50 can hurt your score by that much. If you are in dispute on a bill, I would recommend paying it before it goes past due or to collection and dispute it after the fact. The cost of higher rates could cost you more than the collection. Even after a collection is paid or a late payment is made current it can take quite some time for your credit score to improve.

What you can do about your credit score

You are entitled to one free credit report within a 12 month period from annualcreditreport.com. Credit scores are available for a fee. The pulling of the annual credit report does not impact your credit scores. Be careful about other websites which claim to offer free credit reports or free credit scores. These other sites are not part of the legally mandated free annual credit report program. Also

annualcreditreport.com
will not send you an email asking for your personal information, so do not reply to any requests for this type of information. Below, there is information on how you can access your credit report annually. You can do it online, by phone or through the mail. I have also provided information on reporting problems on your credit report.



Be wary of companies that promise to clean up your credit report. You can do what they do on your own for no charge. I have provided a website for the Federal Trade commission which provides you with information on how to repair your credit.

The bottom line on what you need to know about credit scores

  • Pay your bills on time
  • Keep balances low on credit cards
  • Pay off debt rather than transferring it to other cards
  • Apply for new credit cards only when you need them.
  • Check your report annually for accuracy
  • If you have missed payments, get current and stay current.

Getting your Credit Report

Online:

AnnualCreditReport.com
– you can get your report immediately online

Phone Call: 1-877-322-8228 – can take up to 15 days to receive the report

Mail: Download the request form and complete the form (it can take up to 15 days to receive the report).

Mail to: Annual Credit Report Request Service / PO Box 105281 / Atlanta, GA 30348-5281

Reporting Problems

Amy joined Capitol Bank in April 2009, and primarily concentrates on residential lending and managing the Residential Mortgage Team. She has been successful in the banking industry for over 20 years. Amy was the recipient of the Madison Chapter of the Wisconsin Mortgage Bankers Association’s Distinguished Service Award for 2015.

Amy has a BBA in Marketing from UW-Whitewater. She is proud to be part of a community bank where it is all about the personal attention given to our customers. She graduated Civitas in 2010.

In her free time Amy keeps busy in the community, participating in events such as the Annual Heart Walk. She also enjoys warm destination vacations and being an active soccer mom to her three children.

Amy Gile- Enge NMLS #586017

Vice President, Real Estate Loans