Join Brian Wickert and special guest Jerry Serketich as they celebrate the 50th anniversary of the moon landing, talk about historical mortgage rates compared to 2019, and give you some tips on improving your credit score.
This week on the Accunet Radio Show:
Brian is joined by special guest Jerry Serketich, with the two offering insight and tips on improving your credit score, upcoming rate cuts and more.
This week’s highlights
- 50 years ago, in 1969, the average homeowner spent 25% of their gross income on house payments. In 2019, that number has risen to 36% of gross income.
- We’re all looking forward to the anticipated rate cut on July 31st — and we’re excited to report there’s a 50% chance of another rate cut in September.
- Credit scores are incredibly important when buying a home. But did you know there are five elements that make up your credit score? Payment history, credit utilization, length of credit, new credit and types of credit all help determine your cumulative FICO score.
The housing market throughout the years
To mark the 50th anniversary of the moon landing, Jerry and Brian took a look back on housing trends over the last five decades using data from Freddie Mac. Unsurprisingly, the data shows a large increase in home prices, with just a small increase in median income throughout the decades, marking an ongoing struggle to keep homes affordable.
1969 housing market
- Rate of a 30-year fixed-rate mortgage:99%
- Median new home price: $26,800
- Median income: $9,430
- Average % of gross income spent on housing: 25%
1999 housing market
- Rate of a 30-year fixed-rate mortgage:63%
- Median new home price: $158,200 (6x more than in 1969)
- Median income: $41,000
- Average % of gross income spent on housing: 33%
2019 housing market
- Rate of a 30-year fixed-rate mortgage:75%
- Median new home price: $326,400
- Median income: $57,000
- Average % of gross income spent on housing: 36%
Rate cuts in 2019
We know, almost for certain, that a rate cut is coming on July 31st, and last week, we had a ton of positive economic news. Usually, good news is bad for rates, as a strong economy usually causes rates to rise. As an equalizer, the market grew toward a 0.5% rate cut. In response, the New York fed president, John Williams, is quoted as saying it’s better to take preemptive action against negative economic news — meaning we might have yet another rate cut on the books for September.
So, why should I lock in a rate today? Why not wait for the cut?
Right now, interest rates reflect the anticipated future cuts. Since those cuts are never guaranteed, you actually risk a higher rate by waiting for the cuts to take place. If the Federal Reserve doesn’t follow through, we’d see rates go up pretty sharply, and that can add up quick; If the rates rise to the same level as in 1999, the median family would need to spend 49% of their gross income on housing alone.
Right now, there’s a 59% chance of another rate cut in September. We’ll be keeping an eye out for word from the Fed — until then, make sure to tune in every Sunday for updates.
What affects my credit score?
When you’re ready to buy a home, credit score is everything. It affects your monthly payment, loan eligibility and even which mortgage lenders you can work with. In terms of mortgage lending, a “good” credit score is usually benchmarked at 760. The 760 score marks eligibility for the best of most options in mortgage lending. That being said, it kind of depends on your down payment — 20% down with a credit score of 740 is also considered good. A higher score mainly affects your mortgage insurance.
So, how is your credit score determined?
The 5 elements of your credit score
Credit scores are made up of multiple moving parts, and not all components of a FICO credit score are created equal. Here’s a quick guide to get you up-to-speed on what matters, what doesn’t and how you can start improving your score today.
#1: Payment history — 35% of your score
Do you make on-time payments? How recently have you submitted a payment? Have you ever been late? This is the most obvious, and probably most well-known, aspect of generating a credit score.
Tip: What most people don’t know is that payments are broken into 30-day increments; Being 30 days late is better than being 60 days late, which is better than being 90 days late, and so on.
#2: Credit utilization — 30% of your score
Your credit score takes into account the ratio of balance to credit limit. For instance, if you have a $10,000 limit on your credit card, and you currently have a $6,000 balance, that means you have 60% credit utilization on that card.
FICO experts recommend 30% utilization or lower to result in the best possible score. So, for instance, if you have $10,000 limit, make sure it stays at or below $3,000.
Tip: A little-known tactic for balancing your credit utilization is to spread debt between multiple lines of credit. So, if you have a $10,000 limit on your credit card, and you owe $6,000 on it (60% utilization), you’re better off opening a second credit card and shifting some of the balance to the new account. If you get another card with a $10,000 limit, you’ll have two credit cards with a utilization of 30% or below (assuming you split the balance evenly).
#3: Length of credit — 15% of your score
Longevity matters; Lengthening your track record and optimizing your available credit is the name of the game.
Tip: If you pay off a credit card, don’t close it! Even if you’re not going to use the card, it’s better to leave it open, and let the length of that credit bolster your score.
#4: New credit — 10% of your score
Having new credit is great for credit scores — but that doesn’t mean you should go open a bunch of new lines of credit.
Tip: Open new lines of credit at a measured pace ever few years. This will expand your access to credit, and show continued responsibility in staggered increments.
#5: Types of credit — 10% of your score
Having a combination of installment debts (like car payments) and revolving debt (like credit cards) helps boost your credit health while proving you can handle multiple types of payments at once.
Tip: When you’re making a large purchase, like a car, take out a loan. Even if it’s only a $500 loan, having installment credit helps round out your credit history, and boosts your score as a result.