A 680 CREDIT SCORE just isn’t what it used to be!
Do you remember when a 680 credit score provided the best interest rates? Today, according to
Bankrate.com, the best rates and mortgage programs go to consumers with 700+ credit scores.
Consumers with less than a 700 credit score may see additional fees of 1% or more and increased
interest rates as high as 1% over the base rates. The increased fees and interest expense represents
about $3,500 in extra fees and as much as $134 a month in additional monthly mortgage payments for
a new home buyer purchasing a $350,000 home.
Making this problem worse is the ever-changing landscape of the credit markets and economy. Take
one example: A consumer who had a credit score of 732 last year is now at 648, yet has continued to
pay bills on time.
So what were the primary causes of this dramatic decrease in his credit score? First, the consumer
had his oldest and most established credit card, from a credit worthiness perspective, closed by a
creditor due to non-usage. Second, two other creditors dropped the consumer’s available credit limits
which negatively impacted his credit utilization ratios (i.e., amount spent each month compared to the
credit limit). In each case, these changes occurred for no other reason than the creditors’ overall
concern for risk in the marketplace. The concerning part of this story is that it’s happening unknowingly
to millions of consumers across the country who have GOOD to EXCELLENT credit.
Do you remember when a 680 credit score provided the best interest rates? Today, according to
Bankrate.com, the best rates and mortgage programs go to consumers with 700+ credit scores.
Consumers with less than a 700 credit score may see additional fees of 1% or more and increased
interest rates as high as 1% over the base rates. The increased fees and interest expense represents
about $3,500 in extra fees and as much as $134 a month in additional monthly mortgage payments for
a new home buyer purchasing a $350,000 home.
Making this problem worse is the ever-changing landscape of the credit markets and economy. Take
one example: A consumer who had a credit score of 732 last year is now at 648, yet has continued to
pay bills on time.
So what were the primary causes of this dramatic decrease in his credit score? First, the consumer
had his oldest and most established credit card, from a credit worthiness perspective, closed by a
creditor due to non-usage. Second, two other creditors dropped the consumer’s available credit limits
which negatively impacted his credit utilization ratios (i.e., amount spent each month compared to the
credit limit). In each case, these changes occurred for no other reason than the creditors’ overall
concern for risk in the marketplace. The concerning part of this story is that it’s happening unknowingly
to millions of consumers across the country who have GOOD to EXCELLENT credit.
1
A credit score is not the only thing that affects consumers’ worthiness for the best interest rates and programs. How they manage their debt and how much cash is left after
paying their debt on a monthly basis is another primary critical risk factor lenders evaluate when offering any new credit. This key metric is called a consumer’s Debt-to-
Income Ratio (“DTI”) and measures consumers’ required amount of monthly payments associated with debt in relationship to their monthly income. The less remaining
income consumers have after paying all of their required monthly debt equates to a greater perceived risk by lenders. The greater perceived risk could either ultimately
result in higher interest rates and fees or no credit options at all.
Understand How Credit Works - Although many consumers think they understand how credit works (i.e., “As long as I pay all of my bills on time I will have good credit), there
are many misunderstandings. Although this perception is generally accurate, it is only part of the equation and will rarely help a consumer establish “great” credit. Simply
stated, the reality is that building great credit and credit scores is like making a fine wine; it takes good ingredients, planning and time. A consumer who thoroughly
understands how strong credit scores and credit are created can establish “good” credit the first time. However, the vast majority of consumers manage to learn about credit
through years of trial and error. Understanding how credit reports and scores work to create an excellent credit profile is important and becomes the foundation to strong
financial self management.
Credit & Debt Optimization - Consumers need to take a snap shot of their current debt profile compared to their current income and liquid assets (i.e., cash, short-term
investments, etc.) and then look for ways to “optimize” their debt. Examples could include strategies to reduce credit card balances owed to lower limits that will help them
strengthen their credit scores, reduce interest rates and/or create opportunities to move balances to lower interest rate debt alternatives.
Know What’s Going On - If you’re not managing your credit and debt profile then who is? It’s important to review you credit at least three or four times per year. By doing so
you can monitor it for changes that may have occurred without your knowledge such as the example above. It’s also a great opportunity to self monitor your profile for errors
or suspect activity such as identity theft.
If you’re not managing your credit and debt profile, then who is? It’s important to review your credit at least three or four times per year. By doing so you can monitor it for
changes that may have occurred without your knowledge such as the example above. It’s also a great opportunity to self-monitor your profile for errors or suspect activity
such as identity theft.
paying their debt on a monthly basis is another primary critical risk factor lenders evaluate when offering any new credit. This key metric is called a consumer’s Debt-to-
Income Ratio (“DTI”) and measures consumers’ required amount of monthly payments associated with debt in relationship to their monthly income. The less remaining
income consumers have after paying all of their required monthly debt equates to a greater perceived risk by lenders. The greater perceived risk could either ultimately
result in higher interest rates and fees or no credit options at all.
Understand How Credit Works - Although many consumers think they understand how credit works (i.e., “As long as I pay all of my bills on time I will have good credit), there
are many misunderstandings. Although this perception is generally accurate, it is only part of the equation and will rarely help a consumer establish “great” credit. Simply
stated, the reality is that building great credit and credit scores is like making a fine wine; it takes good ingredients, planning and time. A consumer who thoroughly
understands how strong credit scores and credit are created can establish “good” credit the first time. However, the vast majority of consumers manage to learn about credit
through years of trial and error. Understanding how credit reports and scores work to create an excellent credit profile is important and becomes the foundation to strong
financial self management.
Credit & Debt Optimization - Consumers need to take a snap shot of their current debt profile compared to their current income and liquid assets (i.e., cash, short-term
investments, etc.) and then look for ways to “optimize” their debt. Examples could include strategies to reduce credit card balances owed to lower limits that will help them
strengthen their credit scores, reduce interest rates and/or create opportunities to move balances to lower interest rate debt alternatives.
Know What’s Going On - If you’re not managing your credit and debt profile then who is? It’s important to review you credit at least three or four times per year. By doing so
you can monitor it for changes that may have occurred without your knowledge such as the example above. It’s also a great opportunity to self monitor your profile for errors
or suspect activity such as identity theft.
If you’re not managing your credit and debt profile, then who is? It’s important to review your credit at least three or four times per year. By doing so you can monitor it for
changes that may have occurred without your knowledge such as the example above. It’s also a great opportunity to self-monitor your profile for errors or suspect activity
such as identity theft.
Vinson and McCord Realty LLC helps
you aquire a home, not just a house.
you aquire a home, not just a house.
V
M
VINSON & McCORD
REALTY LLC
REALTY LLC
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©2007-2012 Vinson and McCord Realty LLC. All rights reserved.
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Overview
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