Archive for March, 2008

Credit Scores

Sunday, March 9th, 2008

             A TV news broadcast caught my attention recently.  The consumer affairs/product test reporter produced a piece relating to credit scores.  The segment dealt with three people and spent four weeks working on their credit scores.  At the end of the four week test, all three had increased their FICO scores between 20 and 70 points.  The participants had been coached by Al Bingham a loan officer with National City Mortgage out of Salt Lake City, Utah.

            Real estate in the Park City area is primarily second homes and vacation property.  The majority of the home sales in Park City do not run into financing problems due to their secondary home nature, many are purchased for cash.  There are however, many younger families and people in the area that do finance their primary residence here.   Finding homes and condominiums in Park City that are affordable for the “average person” or the working class of Park City can be very challenging.  A person’s credit score can make the difference in monthly payments that can make or break a possible sale.

            Bingham’s book The Road to 850 illustrates the cost of a credit score (not only in terms of a mortgage, but how it can affect other areas of our lives) and gives directions as how to make your score better.  The chart below illustrates the monthly cost of a $200,000 mortgage in terms of monthly payment and the total cost over the full term of the loan.

 

 

 

 

 

 

$200,000 Loan / 30 year Fixed Interest Rates

 

 

 

 

 

Range of Credit Scores

Interest Rate

Monthly Payments

Extra Mo. Cost

Total Extra Cost

 

 

 

 

 

760 to 850

6.33%

$1,235

0

0

700 to 759

6.55%

$1,263

$18

$10,253

680 to 699

6.73%

$1,287

$52

$18,713

660 to 679

6.95%

$1,316

$81

$29,135

640 to 659

7.38%

$1,374

$139

$49,766

620 to 639

7.92%

$1,447

$212

$76,140

It is conceivable that these numbers have only become more pronounced in their differences and costs to the consumer with the recent liquidity issues in the mortgage business. 

            Another interesting point made by the book is that credit scores also affect your insurance rates and that credit reports are becoming part of background checks for employment and other things.   The book points out that many, if not most, peoples’ credit report contains some inaccuracy.  The book gives instruction on how to correct these issues and lets us know that it isn’t easy.  As the use of credit scores expands it makes sense to know what your credit score says about you and know if it is correct. 

            The recent sub-prime lending mess has brought credit and financing to the front page of the news.  The changes in lenders’ standards as well as the other uses of our credit scores make this book something I highly recommend.

Todd Anderson

http://www.youinparkcity.com/

Todd@YouInParkCity.com