Homeowners: Not Doing This Could Cost You $323 a Month on Your Mortgage
Written by
Vance Cariaga
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Mortgages are expensive enough. The last thing any of us want is to spend more on them than we need to. But if you haven’t taken the steps to make sure you’re getting the best rate on your mortgage, it could be costing you an extra $323 every month.
One of the biggest things that impacts your ability to get a good rate is your credit score. And it probably matters more than you think.
We recently ran the numbers and found that boosting your score from 620 to 760 could save you $323 per month on a $300,000 mortgage. It can also save the average person nearly $80 a month on auto payments, credit cards and more.
How to Make Sure You’re Not Wasting $323 a Month on Your Mortgage
Improving your credit score doesn’t have to be a complicated or lengthy process. You can do it quickly by using a credit-building tool, such as Instal by CreditStrong. With Instal, you’ll be issued a $1,000 secured loan, meaning the funds will be secured away and you won’t have access to them immediately. You can choose the length of your loan (either 24, 36 or 48 months) and the amount of money you’ll put away each month that works best for your budget (either $28, $38 or $48).
CreditStrong then reports these payments every month to the three major credit bureaus, which helps you build credit. Once you’ve paid off the full amount, the account is unlocked and you can withdraw the money. Your account will also be reported as paid in full with a $0 balance. Anyone can qualify for this — even if you have no credit at all.
Instal also comes with free monthly access to your FICO score, so you can closely monitor progress toward your credit score goals.
What Determines Your Credit Score?
If you’re interested in boosting your credit score, it’s a good idea to familiarize yourself with what goes into a credit score. The two main credit scores are the FICO score and VantageScore. Here’s how FICO scores break down, from best to worst:
- 800 or higher: exceptional
- 740-799: very good
- 670-739: good
- 580-669: fair
- 579 or lower: poor
The higher the score, the better your chances of being approved for a mortgage loan or other types of credit. Your chances of approval fall dramatically for scores below 670. If your score is 579 or lower, you’ll have a hard time getting approved for anything unless you put down a deposit or find a co-signer.
FICO has five factors that contribute to your credit score, each of which is weighted differently:
- Payment history: 35%
- Amounts owed: 30%
- Length of credit history: 15%
- New credit: 10%
- Credit mix: 10%
VantageScore 3.0 has six factors:
- Payment history: 40%
- Depth of credit: 21%
- Credit utilization: 20%
- Balances: 11%
- Recent credit: 5%
- Available credit: 3%
Credit Score Best Practices: Are You Doing These?
Because your credit score plays such a big role in securing a mortgage loan at the best terms, you should check it regularly — especially if you’re in the market to buy a new home. Not keeping an eye on your credit score means you won’t know when it goes down. You might not even realize your score is low until you apply for a mortgage.
If you’re in the market to buy a new home and aren’t doing these other things to improve your credit score, now’s a good time to start:
Pay Your Bills on Time
It’s impossible to overstate the importance of timely payments when it comes to your credit score.
“Making a late payment has a large immediate negative impact on your credit score,” said Erik Beguin, founder and CEO of Austin Capital Bank, which offers a family of credit-building products through its CreditStrong division.
Pay Credit Cards in Full
Running your credit card balances to their limit can destroy your credit score in a hurry. This is the case even if you pay your bills on time. The best way to avoid this problem is to only spend as much on your credit cards as you can afford to pay in a month. Paying your credit card bill in full each month can improve your credit score and help you avoid interest charges.
Limit Your Credit Applications
Whenever you apply for credit, the lender or card company runs a hard inquiry to determine whether it will approve you for a new account. Inquiries make up 10% of your credit score and each one has the potential to lower your score. Don’t apply for credit until you need a specific type of loan for a specific purpose, such as a mortgage or car loan.
Bottom Line
Your credit score has the potential to make a huge impact on your monthly expenses, especially your mortgage. If you’re in the market for a house, or you’re interested in improving your credit score, it’s worth considering Instal by CresitStrong.
It’s easy to get started and see how much you could improve your credit score.
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