Tuesday, May 31, 2011

Credit Scores and Kentucky Mortgage Loans

Credit Scores and Kentucky Mortgage Loans

The best way to rebuild a damaged credit score, ironically, is to use credit.

Avoiding borrowing altogether means "you've frozen your credit history in a negative state," says Maxine Sweet, vice president of public education for credit bureau Experian. You will be better off using a credit card judiciously and paying it off promptly, adding good-behavior points to your record.

A rotten score hurts more than you think.

A person with a 620 score would pay almost 12% interest on a four-year $25,000 car loan, compared with less than 5% for someone with a 780 score -- a difference of almost $4,000 over the life of the loan. On a 30-year fixed-rate $250,000 mortgage, a person with a 620 score might qualify for a 6% rate, but probably wouldn't be able to get mortgage insurance, which is required if your down payment less than 20%. A person with excellent credit might land a rate less than 5% and pay about $3,000 a year less.

Write to Karen Blumenthal at karen.blumenthal@wsj.com

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