Plan Your Financial Wealth

Archive for March, 2009

Your FICO score is a determining factor in setting the interest rate on your mortgage. Put simply, your FICO score is a risk rating on you, the borrower. The data relating to financial responsibility is aggregated by institutions that you deal with, and this includes the data on your FICO score or credit score. So what does your FICO score and how will it affect your mortgage interest rate and your monthly payments?

There are five basic components with respective percentages that make up your FICO score. They are payment history 35%, amounts owed to 30%, length of credit history 15% new credit 10%, and the types of credit used 10%. As indicated by the figures above, the payment history has the most weight in the composition of the score. Mortgage lenders require borrowers with a history of outstanding payments so they can forecast future earnings. To secure future profits, the lender should know that borrowers will be able to pay in the future. The service past debts is an excellent indicator of debt servicing future, therefore, if you were at with the vast majority of your debt payments in the past, you will be a profitable customer in the future, and therefore an acceptable mortgage risk.

Payment history includes not only the payment history on prior mortgages. It includes a long list of financial data, everything from the most obvious of credit cards to those who were less obvious, such as how completely you fulfilled your promises of repayment on a line of credit overdue shopping. The data are an extension of direct financial transactions will be also included in the payment history component of your credit score. Examples of these data are liens, garnishments, judgments and bankruptcies. Understand how to create a complete profile of yourself, by yourself, is critical to your financial success in the 21st century. If you entered a financial transaction, credit or an account held by computer databases, any and all information will be used by lenders to evaluate you as a risk to profitability.

Amounts owed includes 30% of your credit score, even if lenders do not directly use the variables that constitute the amounts owed on a FICO score they will probably use a measure of your current debts and debt service to determine if they are paid in full and on time. Before taking out a mortgage, pay off debts as possible is an excellent idea. Being less of a risk is quite desirable and will allow you to shop around for the most competitive rates. Your credit score is a good indicator of you as a risk to the lender and therefore institutions use it as a way to pay your mortgage interest rate, and therefore the amount of your loan each month. A common analysis, used to illustrate the huge difference in the rate and manner of payments on a loan, is to analyze a loan of $ 300,000 and what a good credit score and a bad rating credit would have to pay.

On a $ 300,000 loan, a credit score of 760-850 can expect to pay about 5.5% and a monthly payment $ 1,700. A credit score of 500 can expect to pay about 10% and $ 2600 per month, quite a difference in monthly payments