How to Make Your Home More Energy Efficient
As people become increasingly concerned about the impact of climate change, homeowners are growing interested in how they can renovate their homes and adopt energy efficient habits to help the environment.
In addition to substantially reducing its carbon footprint, energy efficiency in the home provides numerous benefits to the homeowner, including driving down energy costs, increasing the property value and creating a cleaner, healthier living space.
Continue reading to learn more about the benefits of energy efficiency and how you can take steps to decrease the overall energy consumption of each room in your house.
What is energy efficiency and how can it benefit the homeowner?
Energy efficiency refers to a home’s ability to use as little energy as possible. Efficiency is improved by designing, constructing, and even living in the home in a way that reduces the total level of energy consumption.
One of the greatest benefits of energy efficiency is cost savings. Homeowners can drive their monthly and annual energy costs down simply by making a few improvements. More than that, energy-efficient homes also tend to be significantly easier to maintain. That makes them more durable and sustainable over time, which could pay off if you decide to sell in the future.
Energy-efficient homes also use less water. This is especially important for homes located in parts of the country that mandate periodic water bans, particularly during the summer months. Reducing your water consumption can help you manage these bans with as little friction as possible.
Important for you and your family’s day-to-day well-being, energy efficiency can also contribute to a cleaner and safer home, providing a healthier and more comfortable living environment for everyone inside.
If you’re ready to reap all the benefits that come with energy efficiency, let’s begin at the top and explore possible ways to make your home more energy efficient.
Many homeowners don’t give their attics the attention they deserve. In terms of energy efficiency, this can be a problem because heat rises, and the attic can become a major cause of wasted energy if not properly managed.
Insulation. One easy way to improve energy efficiency in the attic is to add a layer of insulation to attic walls and ceilings. There could be a large upfront cost to undertake this, but it will add a significant boost to your home’s energy efficiency, which will substantially drive down energy costs in the months and years ahead. The Environmental Protection Agency estimates you can save around 15% on heating and cooling costs by adding insulation to your attic, in addition to a few other home improvements.
Fiberglass. If you’re ready to take the next step, the material you use can also have an impact on your home’s efficiency. Fiberglass is one of the most commonly used materials for insulation, but builders and homeowners have begun to experiment with a wider selection of materials as well.
Eco-friendly insulation. Cellulose insulation material, to use one example, is made primarily from recycled newspaper. Adding extra padding of cellulose insulation not only helps drive down costs directly associated with your energy consumption, but the use of recycled material also helps reduce your overall carbon footprint.
Living rooms and bedrooms
Moving down from the attic to other parts of your home, living rooms and bedrooms get more varied use and will require more sophisticated energy-efficient solutions.
Efficient lighting. One of the first steps you can take is equipping all of your rooms with efficient lighting. According to the Department of Energy, LED lights use up to 75% less energy than standard incandescent light bulbs and can last around 25 times as long. Not only do you get the savings associated with less energy consumption, but you also reduce waste by requiring fewer bulb replacements.
Windows. You can also manipulate windows to boost energy efficiency. Invest in energy-efficient windowpanes to trap heat in the winter months, reducing overreliance on central heating systems. Windowpanes can also be designed to block out the sun’s heat when it’s warmer, reducing the temperature inside the home and lessening the need for costly air conditioning.
Smart thermostats. These systems use artificial intelligence and machine learning technology to learn when different rooms are being occupied, using this information to lower or raise the temperature only when needed. One of the industry’s leading smart thermostat manufacturers estimates that these devices can create annual cost savings of up to $145.
Appliances. The TV, DVD player or computer could be unplugged when not in use. They still draw energy, called phantom power. This is an easy step to lower your electric bill!
Bathrooms and laundry rooms
These rooms are a major source of water and energy usage, and you can boost the energy efficiency of your bathrooms and laundry room simply by developing some better habits.
Use less water. Turn off the faucet while soaping and scrubbing while showering, and also by keeping yourself to a time-restricted shower. Turning off the water while brushing your teeth represents another important energy savings opportunity.
Use cold water whenever possible. Hot water requires energy to bring to the desired temperature, so cold water can help drive down costs. It’s also important to unplug all appliances when you aren’t using them. This includes electric toothbrushes, hairdryers, electric razors and any other electronic device in your bathroom.
Air dry when possible. In the laundry room, the clothes dryer is one of the biggest energy consumers among all household appliances, representing more than a third of your home’s energy usage, according to the EPA. Air dry whenever possible and ensure that you’re only drying appropriately sized loads to avoid having to redry clothes.
Many of your home’s appliances reside in the kitchen, so one of the best ways you can improve energy efficiency is to be more mindful of appliance use in the kitchen. Helpful steps you can take include:
Shut the stove when cooking. Every time you open your stove, you’re causing heat to escape, forcing the oven to use more energy to return to the set baking temperature.
Unplug all appliances. Like the electronic devices you use in the bathroom, your kitchen appliances are using energy even when they are not in use. Unplug them after each use to conserve energy.
Air-dry dishes. Air-drying your dishes whenever possible helps cut down on the costs associated with using your dishwasher. You can also make your dishwasher more efficient by only running it when it’s completely full.
Keep fridge and freezer doors closed. It can be easy to leave these doors open when you’re going in and out of the refrigerator/freezer. Closing these doors whenever you can helps prevent air conditioning loss.
Use the microwave. Microwave ovens use less energy than conventional ovens, so utilizing your microwave more can help conserve energy.
There are several steps you can take to boost your home’s overall efficiency.
Air Filters. Make sure filters in all appliances throughout your home are cleaned and replaced regularly, which can significantly enhance their effectiveness. The Energy Department noted that replacing your air conditioner’s dirty filter can improve its efficiency by up to 15%.
Transportation. Decrease the amount of energy your family uses by relying more on energy-efficient forms of transportation. That means carpooling, taking the bike and using public transit whenever possible.
Reduce, reuse, recycle. You can also make major strides toward reducing your carbon footprint by reusing and recycling waste products and other unused items. More than just chucking plastics in the recycling bin, you can also donate worn clothing, compost food scraps and sell used electronic equipment to the right IT companies.
Solar Panels. Finally, you can invest in renewable energy like solar. Solar panels don’t generate any emissions and gather their power from the sun, and they can save you more than $1,300 a year on energy costs.
RMS can be your partner here, as our loan officers can originate renovation loans to help finance the costs of overhauling and remodeling your home to make it more energy efficient.
Trust our team at RMS
RMS is dedicated to consistently providing our customers with a high-quality home financing experience that is both simple and easy to understand. Using the right balance of communication, technology and teamwork, our RMS loan officers will provide a home mortgage experience you can feel confident about.
So, rest assured, next time you or someone you know needs help financing a home, your experienced RMS loan officer is ready to guide you home!
Contact us today to get started.
Home Improvement Tips
Buying a home is one of the biggest financial investments you’ll ever make. Unlike in a rental situation, the on-going maintenance and upkeep of your home falls squarely on you. It’s something you should plan and budget for, in part because you want to live in a safe and up to date home. It is also because you might not live in that home forever, and you want to protect its re-sale value when the time comes.
Everyone loves watching those shows on HGTV where it only takes an hour to see a before and after of a brand-new kitchen, or a fully landscaped backyard. The truth is, no matter the project, big or small, it takes planning. So, get your creative juices flowing for some great brainstorming, there is a project for every do-it-yourself warrior!
Home improvement projects can vary depending on what you are looking for. Are you looking to make your home more aesthetically pleasing and show versatility? Or maybe you are looking to invest in a project that will add to your home’s overall value? Either way we have some things to consider as you make your way through the world of home improvement.
Styling Your Space
Starting small. If you are hesitant to start a larger renovation project, tackle household projects with smaller, overlooked spaces. These projects can be budget-friendly and fun to do over a weekend.
Design: framing your front door to coordinate with your home style will dress up your curb appeal. Adding plants, unique exterior lighting, and even house numbers will create a polished look as you enter the home.
Storage: your entryway is one of the first things people see when they walk in. Create a storage system, so your loose shoes and jackets have a place to live. Kids would love to have cubbies of their own.
Design: add millwork to your entrance. Keeping the style as you come from outside will add a layer of luxury that visitors will instantly notice! Try layering pieces around the entryway for a more dramatic look.
Storage: ample kitchen storage is always a great selling point. Take advantage of an unused wall or corner space. Install open shelves for your most commonly used cookware.
Design: use the space behind the open shelves to add a fun wallpaper print or backsplash. Adding an extra element of design will draw the eye around the room.
Storage: books and display pieces can add interest to your living room. Adding baskets or boxes to shelving gives dimension and you can store items out of sight.
Design: transform your room with crown molding or trim work. You can achieve a brand-new look in one weekend!
Storage: getting rid of unused items is the first way! Here are some tips on eliminating clutter and how to keep it that way.
Projects that Add Value
If renovation or remodeling is in your plans, you’ll want to mitigate costs as much as possible. Depending on the material used and the magnitude of the project, home renovations can cost tens of thousands of dollars, an amount that few families have readily available. That is where an FHA 203K loan with RMS might make sense.
As you are brainstorming about your end goal, you might want to figure out how much you will reap the benefits of costly projects. We broke down some benefits for a few scenarios below. For a more comprehensive list, and financial breakdown, visit Remodeling Magazine for the up to date 2021 data.
Garage Door Replacement: If your garage door gets a lot of wear of tear, it might be worth replacing. Garage doors have been the highest ROI for several years. Coming in at an affordable cost to replace, the value of the door almost pays for itself.
Remodel the Kitchen: Many buyers are looking for a modern, updated kitchen. When remodeling, start small. Replace the faucet, add new hardware and replace light fixtures. You could paint the cabinets instead of installing new ones. If you’re going for a complete overhaul, don’t go overboard. You may recoup a large percentage of your investment, depending on the value of your home.
Upgrade Appliances: This may go hand in hand with kitchen upgrades, but you could focus on matching and modern appliances. It gives your kitchen a more cohesive look, and if they are energy-efficient models, they will be better for the environment and save on your monthly expenses.
Windows: Quality windows are an investment that can’t go wrong. The ROI for good windows is about 69% according to Remodeling Magazine in 2021.
Remodel Attic or Basement: adding usable square footage with an add-on could be costly. Converting the basement or attic into a versatile space will add more appeal to potential buyers.
Boosting Curb Appeal: First impressions mean a lot. Enhancing your exterior could be as simple as power-washing the siding, installing a new front door, or pruning shrubs, and adding a flower garden. It doesn’t need to be expensive to boost that wow factor!
Projects that May Negatively Affect Value
Certain projects might have a negative effect on the resale value of your home. A general rule of thumb is less is more. Lower-cost, less customized projects generally reap more significant returns. It doesn’t mean you can’t do your luxury renovations, just keep in mind the buyer may not see the appeal and may not be willing to pay additionally for these additions.
Swimming Pools: In-ground swimming pools are a nice to have. Depending on where you live, they might be used more than a few months out of the year. Buyers with children might think of it as a safety hazard, and some may not want to pay for the additional costs of keeping up a swimming pool.
Luxury Upgrades: If you are thinking about selling in the near future, you may want to think twice about the high-end additions. Invest in quality appliances, flooring, and upgrades that will appeal to all buyers.
Garage Conversions: Most buyers want a garage for their car or storage. Upgrading your garage into usable square footage might not attract buyers. Keep track of what your neighbors do. You don’t want to be the most expensive home on the block.
What If You Need To List Quickly?
If your budget won’t allow for repairs, and you need to sell your home, you have options.
Sell as-is: Make it clear to buyers you won’t be making any repairs. You will need to adjust your listing price based on what necessities need to be done to the home. Buyers may try to negotiate based on the “sell as-is” offer, especially if the repairs are lengthy.
Offer a credit at closing: If the home inspection uncovers unforeseen issues, you can offer a credit that will allow the buyer to make the repairs after closing.
Other options: There are real estate companies that will buy your home and quickly. Zillow Offers will give you a cash offer and take the stress off showing, repairing, and managing your home for sale. These offers may be at a much lower price than you would typically sell, but if the need is there, it might be what you are looking for.
At the end of the day, it’s still your home. Enjoy where you live and be aware of projects that might be costly to you and not add value to the house. If you are in the market to sell your home and don’t know what projects would be best for your budget, get an inspector to come out and assess your home.
This might also be helpful if you are looking to refinance. Adding value to your home will mean you will have more equity and a lower loan-to-value ratio. If it is early on in your mortgage, depending on the financing you have, you might be able to cancel your private mortgage insurance. If you have any questions regarding refinancing, the Loan Officers at Residential Mortgage Services will be glad to answer any questions. Contact us today to get started!
Financial Literacy for Kids, Teens and Young Adults
People aren’t born knowing how to save money and take out loans, and some don’t acquire these skills until well into adulthood. But parents can teach their kids good financial habits when they're younger, helping to mold them into adults who are able to manage their finances responsibly, and better positioning them for a happy, secure life.
Many children, teens and even young adults aren’t interested in learning about complicated financial systems, so it can be difficult to find effective ways to explain this essential information to them. But with the right approach, parents can break down the basics of financial literacy, including the importance of saving, the link between work and money, and how paying down debt can set them up for future financial stability.
Children 12 and Under
A child’s early years are critical for shaping their adult behaviors. Their growing brains are constantly absorbing new information from virtually every one of their interactions, and they’re using this input to form their unique perspective of the world.
Most children, of course, aren’t consciously thinking about personal finance, but they are developing habits that will eventually shape how they manage their finances.
Children without a proper understanding of the monetary system might mistake quantity for value — the more bills and coins one has, the better. They may also mistakenly believe coins — which tend to be shinier and heavier than paper bills — are more valuable. A child could easily believe that a jar of 100 pennies is a greater value than a $100 bill.
One of the earliest and easiest pieces of financial information you can teach children is that pennies, nickels, dimes and quarters are just small parts of a single dollar, and that several dollars can be consolidated into single bills for a much higher value.
It’s also beneficial to teach them the basics of currency exchange, which can help them to understand that the value of their money might actually be different in other parts of the world, depending on where they are.
Saving for the Future
Most children haven’t yet developed their capacities for long-term planning, so many of their wants and subsequent actions are informed by their need for immediate gratification. Because of this, they haven’t yet grasped the concept that saving resources now can compound over time and provide greater value later.
Savings jars are useful techniques parents can use to teach the value of saving. Children can be easily taught that they can buy very little with the few cents or dollars they have now. Encourage them to save what they have to buy something bigger and more valuable. Teaching them to use their savings for a larger purchase gives them a concrete example of the rewards of financial discipline.
Teenagers aged 13-17
By the time they hit their teens, kids are beginning to engage in more activities that require money, including eating out with friends and going on dates. This is an opportunity to put into practice lessons they might already have learned about saving and budgeting, as well as teaching them the value of working for their money.
Chores and Allowances
Chores and allowances are a great way to teach young teens about the relationship between work and money.
Outline a plan in which each chore has a certain monetary value, preferably more for the chores that take longer or require more work, and less for those that are not as demanding. As they learn that the money they use comes directly from the amount and quality of the work they perform, it could encourage them to save and spend more wisely.
Allowances might also help young teens think more creatively about how to earn money, devising ways to better manage their time and devote a certain portion of their week to money-making activities.
Earning a Steady Income
Once they reach their mid-to-late teens, most teenagers will have outgrown the income they receive from allowances and will be ready to start their first formal jobs, whether that is part-time or full-time.
Similar to the lessons they learn from doing chores, teenagers will continue to reinforce their understanding of the relationship between their time, the amount of work they perform and the disposable cash they have on hand.
More than that, the process of applying for, interviewing and ultimately obtaining a job gives teenagers a chance to understand first-hand the process of finding employment. Whereas chores offer a reliable, permanent way to make money, it’s important for teens both to understand what it takes to find and keep a job, as well as to deal with the disappointment if they are unsuccessful.
Teaching young teens about saving and growing their allowance through chores is a great step. The piggy-bank progression as they earn a steady income with a formal job, is to start a savings account. Keep your teen involved in the process of choosing a financial institution for the savings account. Use this opportunity to discuss fees and requirements of the institution, as well as the location and digital accessibility. Everyone should be made aware of how personal data and financial information will be used and how to keep personal data safe with strong passwords and good digital security practices.
Young Adults Aged 18-22
For many young adults, college is the first time in their lives where they are free to handle their day-to-day affairs without parental supervision. This is an important growth opportunity, and one of the best times to develop responsible, life-long financial habits.
Paying Down Debt and Credit Scores
The process of applying for student loans exposes many young adults to the complexities of debt and credit, making it an incredible opportunity to teach them about crediting, financing and the importance of repaying debt in a timely manner.
Making your payments on time is one of the most important factors in formulating one’s credit score. Young adults who may understand the value of saving and budgeting by this point in their life might not fully grasp the concept of credit scores and how it can impact their lives.
It’s important for them to understand that many of the big purchases they will make in their lives — including buying a home and purchasing a car — will be financed by loans. Lenders like Residential Mortgage Services provide home financing based in large part on a borrower’s ability to repay, so their access to capital will depend on their own financial history.
Student debt is a great starting point because they will be expected to start making payments soon after graduating and it will follow them for a substantial chunk of their lives. On average, people spend close to 20 years repaying their student loans, according to data compiled by New York Life and reported by CNBC.
How can RMS help
It can be challenging to equip children, teens and young adults with the skills they need to become financially literate adults. But by teaching them the basics in a way that is relevant and easy to understand, you can help them develop the tools they need for a secure life.
RMS is dedicated to consistently providing our customers a high-quality home financing experience that is both simple and easy to understand. Using the right balance of communication, technology, and teamwork our RMS Loan Officers will provide a home mortgage experience you can feel confident about. Rest assured, next time you or someone you know need help financing a home, your experienced RMS Loan Officer is ready to help guide you home.
Have Further Questions? We’re just an email or phone call away!
Spring Cleaning and Organizing Tips
You can probably recognize the smell as you open your windows, freshly cut grass. Signs of spring are in full swing all around you, from the flowers blooming to the hot dogs on the grill at the community baseball game. Traditions keep us looking forward to the future, and now is time for another ritual that is not only good for your home, but can be a mood booster as well.
Spring cleaning as a homeowner looks different than with a rental. Whether you’re a new homeowner or a seasoned pro, giving the time and attention spring cleaning needs, can seem overwhelming. So, take it one step at a time, because nothing beats that sparkle and breathing in that fresh clean air!
Keeping up on regular home maintenance can help your home run efficiently. Read on for ways to tackle your spring cleaning to keep your home in tip-top shape.
Spring Cleaning Breakdown
- Clean room by room
Whether you have a weekend or just a few hours, it’s best to break down your deep cleaning into doable sections. Focus on one room at a time and see a noticeable difference when you’re done.
If you are like most people, you have a cleaning routine. Whether it is weekly or bi-weekly, you know what gets done on a regular basis. Feel free to skip those areas and focus on the parts of the home that were neglected over the winter months. Make a list for each room to help you get organized and focus on what needs the extra attention.
- Get the kids involved!
Assign age appropriate chores and, if you’re able, put a financial reward behind them. This can be a great way to start to teach young ones the value of money.
- Tackle seasonal chores
Preparing your home for the warmer months is a great way to ensure longevity for your home and appliances. As you are making your list, check out our suggestions for maintaining efficiency with this Spring interior checklist.
- Spots that go unnoticed
Don’t forget the microwave, windows, and mattress. Good Housekeeping has some tips on the “easily forgettable” spots like the ceiling fans, cutting boards and doormats.
If you’re still at a loss of where to start, take a look at these easy-to-use printable checklists! There are 6 options, so choose which one is best for you and get started.
Eliminate Unwanted Stuff
Big or small, stuff takes up space, which comes at a premium when you're looking to declutter and organize. So, what do you do with it all? Should you sell it online or in a yard sale? If it's technological in nature, how do you get rid of it responsibly? Donating things you no longer need will free up space in your home and allow your items to better serve someone else who needs them. Decluttering your home can seem like a daunting task but sorting through your home will be more manageable if you tackle it in these four categories: Toys, books, wardrobe, and furniture.
- Declutter and Donate - spread the love
If you have children, or are an adult with a healthy collection of your own, toys and entertainment items are a good place to start. Look through and donate the entertainment items that have been outgrown or no longer hold interest. If these are your children’s toys, involve your kids in the process of going through them to teach them the positive impact of clearing space. Make sure to include them in donating their toys so they can understand and appreciate that their toys are going to children who might need them.
- Trust the Dust - a signal that it might be time to let go
Sort through the books that have been collecting dust on your shelves. Used bookstores, schools, libraries, and thrift stores will be thrilled with your donation.
- Undress the Mess - figure out what you love and use
Clearing out your closet is a great opportunity to create more order in your daily routine. Oprah Winfrey’s closet hanger experiment is an excellent way to create space in your closet. Turn all of your hangers to the reverse direction in your closet. Every time you wear a garment, flip the hanger to the correct direction. After six months, evaluate the articles of clothing with hangers still facing the reverse direction and consider donating them.
Does your household have a pile of tennis shoes that are too worn to donate? Nike’s Reuse-A-Shoe Program can still put those dirty kicks to good use. The Reuse-A-Shoe Program takes old sneakers and turns them into footwear, apparel, and sport surfaces through Nike Grind. Nike placed Reuse-A-Shoe bins in every one of their retail locations and accepts any brand of athletic shoes for this program.
- Go Big - out with the old
If you have gently used furniture and appliances you no longer need, there are many charities that will come to you and pick up your donations for free.
- Salvation Army – Schedule a pick up HERE
- Goodwill – Schedule a pickup by calling your local retail store.
- Habitat for Humanity – Schedule a pick up HERE
Get your home all set this spring by cleaning and organizing now so you can enjoy every Summer day filled with sunshine! Decluttering your home can reduce stress and maximize space in your home. Make it a positive activity and get everyone in your household involved in decluttering your home and spreading the love!
At Residential Mortgage Services, we aim to meet not only your home financing needs but your homeowner’s needs as well.
Do You Know What Impacts Your Credit Score?
Consumers in today’s market know the importance of a good credit score. It’s a vital figure that’s used to determine if an individual can secure credit, whether in the form of loans or credit cards.
Credit scores are complicated metrics, and many consumers don’t fully understand how they are derived. That means that otherwise reliable borrowers might unwittingly make mistakes that could reduce their score and hurt their ability to obtain credit in the future.
Residential Mortgage Services is not a credit reporting agency and we don’t provide these services. The following article is for educational purposes only. Read on to learn more about the five major factors used to determine your credit score.
How are credit scores calculated?
There are five main factors that metrics like the FICO® score use to calculate an individual’s credit score. These are meant to capture the scope of a consumer’s credit behavior and help lenders determine if they are reliable borrowers. The percentage figures indicate how important each factor is to the overall score.
- Payment history (35%)
- Amounts owed (30%)
- Length of credit history (15%)
- New credit (10%)
- Credit mix (10%)
Credit scores are living metrics, and each of the above factors can be changed over time by responsible borrowing and spending. If they know what to look out for, individuals can adjust their score over time and increase their own likelihood of obtaining credit.
- Payment History - is the most important factor affecting your credit score, amounting to 35% of ratings for each major credit reporting agency. This metric takes into account your history of making payments on time, and helps creditors determine how likely you are to pay down your debt.
One late payment is unlikely to negatively impact your score, especially if the other factors listed below are good. However, consistently missing payments signals to creditors that you’re an unreliable borrower, and this can bring down your score over time.
Payment history doesn’t take into account certain expenses, like utilities or rent; it only considers debt payments. However, consistently missing rent or utilities bills can hurt a good credit score if your landlord chooses to transfer the accrued debt to an external collection account.
Taking charge of your credit score
The easiest and simplest way to improve this component of your score is to pay your bills on time. Record the due dates for each of your bills in a calendar, and keep a tight budget to ensure that you can actually fulfill your obligations. It’s also important to make the payments you’ve already missed. Outstanding debts can negatively impact your score the longer they go unpaid, so ensure that you catch up on all missed payments to boost your credit score.
- Amounts Owed - The amount of debt accounts for 30% of your credit score. It’s considered one of the most important metrics for lenders because there is a negative correlation between the amount a person owes and their ability to pay it, according to research conducted by FICO®.
Amounts owed is a complicated factor, however, and it’s not solely determined by total dollar figures. Reporting agencies also take into consideration the number of accounts that have payments owed as well as different types of accounts.
Credit utilization ratios also play a crucial role. This figure shows the amount of credit a borrower is currently using compared to the credit they have available. A high ratio demonstrates to lenders that a borrower is unable to keep their finances under control. Z
Taking charge of your credit score
Similar to payment history, the best thing you can do to improve this metric is to consistently make your payments on time. Avoid opening unnecessary lines of credit while you still have outstanding debt as this would increase the amount you owe and could reduce your score. It’s also important to budget responsibly and maintain good credit utilization ratios. A good rule of thumb is to keep your credit utilization rate at or below 30%, according to Experian.
- Length of Credit History - Creditors want to know that potential borrowers are reliable, and those that can show a long track record of consistent payments and responsible borrowing are considered less risky. To measure length of credit history, lenders typically consider the age of your oldest and newest accounts, how long each account has been open, and how long since the accounts were used.
Taking charge of your credit score
This factor presents a problem for many borrowers because it takes time to build up a history, making it difficult for those without a long record to obtain credit. The good news is that length of credit history only accounts for 15% of your credit score. Unfortunately, the only way to improve it is to develop a good history over time.
Think of your credit score as its own investment. Each of your credit card balances, every payment you make, and every loan you acquire will influence your score, so take steps today to put yourself in a good position for when you need credit in the future.
Many borrowers close older accounts that they seldom use without realizing the implications it could have for their credit score. This can actually hurt your score because it could reduce the length of credit history your record shows and make you look less reliable. Consider keeping these accounts open and in use to demonstrate your history.
- Credit inquiries - Credit is a must for shoppers and buyers in today’s consumer market, but opening new lines of credit might invite overspending, leading to an inability to make payments. This might flag you as a risky borrower and bring down your credit score. Whenever you apply for credit, lenders inquire about information on your credit history, and a high number of inquiries on your record can hurt your score. The amount of new credit accounts for 10% of your score.
Mortgage inquiries are dealt with differently. They are typically too inconsequential to have a major impact on your score, and newer scoring systems will not usually include mortgage inquiries when tabulating your score.
It’s important to know that requesting and checking your credit score (or “inquiring” into your own score) will not have an impact.
Taking charge of your credit score
You should limit the number of new accounts you open during a certain period of time. Determine which lines of credit are most useful to you and hold yourself to them. Even if you need more credit, give yourself some time between applications to protect your score.
Managed carefully, your credit score can still be improved by opening new accounts, so long as they are different from each other. Overseeing a range of different types of debt signals to lenders that you are a capable borrower, which can boost your score. (More on that below.)
- Credit Mix - This is the fifth major factor scoring companies use to determine credit scores, designed to demonstrate how well a potential borrower can manage different types of debt. Accounting for 10% of the score, this metric shows lenders that the type of debt doesn’t change a borrower’s ability to pay it down.
There are two main types of credit: revolving and installment. Revolving accounts include credit cards and gas station cards, and installment accounts include mortgages, student loans, car loans and other types of long-term credit.
Taking charge of your credit score If most of your credit falls under just one of the above categories, your credit score might take a hit. Consider opening a different type of account to boost the variety of your debt. As you pay down the debt over time, your credit score will reflect your ability to manage different types of credit.
What Doesn’t Affect Your Credit Score
- Spouse’s credit history. Sharing finances is common practice for married couples, but credit scores are individual calculations. Marrying someone with a bad credit score won’t directly impact yours (though your spouse’s credit behavior might eventually affect you if you choose to open joint credit accounts).
- Bank balances. Your credit score depends only on your credit history, so your current bank balances are not factored into your score. Keep in mind that individual lenders might (and often do) ask for information on your income before giving loans.
- Debit cards. Activity on your debit cards (and other prepaid cards) does not impact your credit score. Debit cards do not contain any lines of credit, so the use of this cash won’t change your score.
- Rent and utilities. As mentioned above, rent and utilities bills don’t directly impact your credit score. They can, however, if you fall too far behind on your payments and your landlord (or other service provider) transfers your debt to a collection account.
- Checking your credit score. Also mentioned above, checking your own score is not the same as an inquiry, so it won’t have any effect.
Developing Your Credit Management System
Credit scores are complex metrics that can be impacted by a whole range of actions and behaviors. Understanding how credit scores are tabulated can help you make sound financial decisions and make you better able to secure credit when you need it.
As we said in the beginning, the information in this article is for educational purposes only and does not constitute legal or other financial advice. For more information on credit, check out the webpages of Equifax, Experian or TransUnion, or the Consumer Financial Protection Bureau or other local state agencies. Before you take action, do your research and consult with an accredited counseling professional, if needed.
Taking out a mortgage is a major life decision, so it’s important to make sure you’re following the right steps to ensure the process is as smooth as possible.