We’ve all heard how important your credit score is when buying a duplex.
After all, the way the bank sees it, the higher your score, the more likely you are to pay off the loan.
In other words, you’re low risk. And that, to them, is worth rewarding with a lower interest rate.
So how do they come up with your credit score anyway?
According to Waterstone Mortgage, the credit bureaus consider five factors. In order of importance they are:
- Payment History – 35% Impact. Late payments, delinquencies and charge offs indicate that you’re a risk to a lender. Especially if they’ve occurred in the last two years.
- Outstanding Credit Card Balances – 30% Impact. The important component here is the ratio between your outstanding balance and the amount of credit you have available on your account. While the ideal scenario includes credit balances at or near zero, you should at least owe less than 30 percent of the available credit; especially if you’re planning on buying a duplex in the next few months.
- Credit History – 15% Impact. This component considers the length of time you’ve had a credit line. The longer its been open, the more likely you are to be a strong borrower.
- Type of Credit – 10% Impact. It’s not only the amount of money you owe, but it’s also the kinds of payments you make. For example, if you have a mixture of car loans, mortgages and credit cards, you’re viewed more favorably than if you just have credit card debt. Waterstone also suggests you should always have one or two major credit card accounts.
- Inquiries – 10% Impact. Did you know if you go around having people pull your credit, each time they do so it can cost you between 2 and 25 points on your credit score? Credit bureaus can ding you up to 10 times in a year for doing this. A better strategy might be to pull your credit yourself, which will have no impact in your credit score.
You must have, at minimum, a credit score of 620 before any lender will consider giving you a loan.
Again, the higher your credit score, the lower the interest rate you’re likely to be charged, which may save you hundreds of dollars a month on your payments, not to mention thousands over the life of your duplex loan.