I hope you found last week’s letter somewhat interesting and
informative…after all, housing is a necessity and a lot of thought should be
given to it before making a decision that affects your entire household.
Below is some information that discusses credit and proven
methods to help rebuild or position your credit in its best possible
light. I hope you find something
valuable contained within this blog!
WHAT FACTORS CONTRIBUTE TO YOUR CREDIT SCORE?
Being in real estate, one consistent phrase that is heard a
lot, almost too much, from both potential buyers and renters is “…but my credit
is not very good.” Undoubtedly most
people have found themselves in difficult situations where tough decisions were
made, or perhaps poor choices were made in those younger, pre-adult years. No matter what led to this point, the
important thing is where one goes from here!
Because a credit score is considered low today, there certainly are ways
to improve it…it just takes a bit of diligence and time.
First off, let’s take a look at a credit score. Landlords and mortgage lenders (insurance
agencies, potential employers) both use them
during the qualifying process, albeit one (the mortgage lender) uses it a bit
more heavily. Obviously, the higher the
score equates to a better percentage of paying the loan back (or rent) in a
timely, consistent manner. So, what
exactly is this magical number?
Most credit scores range from 250 (extremely low) to 850
(top of the charts). They are originated
by the Fair Isaac Corporation (you may have heard of the term FICO) and they take into consideration all of an
individual’s debts: credit cards, loans,
bills. These debts can range from your local utility company, cellular
provider, medical collections, student loans, car payments, and sometimes
rental history. (Yes, landlords are now
beginning to report the rent payments!)
All of these credits are tallied and combined into a single, solitary number
that is used to represent the individual’s risk, or in a positive light, the
odds of the creditor receiving payment.
A credit rating of 720 seems to be the industry standard, the “gold” bar
with which all ratings are judged. Above
720, people can achieve lower rates and better loan terms. Below it, well, it can sometimes feel like an
uphill battle!
There are three companies that produce your FICO score or
more commonly known as credit rating:
TransUnion , Experian, and Equifax.
Several factors come into play in determining this number. However, three factors stand out above the
rest. Let’s take a look at those…
1.
PAYMENT HISTORY:
This one probably holds the top spot in accountability. (sorry for the pun!) How long and how consistent (or inconsistent)
payments were made are very important criteria.
If payments have been missed, TRY TO GET CURRENT! Also, the more recent activity weighs more
heavily. With that being said, it
will be more helpful to get current on the most recent debt, versus something
from a few years ago. However, the
ultimate goal is to be current on all payments!
2.
ACCOUNT BALANCES TO CREDIT LIMITS: This aspect looks at the ratio between the
total debt against the total amount the creditors could possibly lend. Lenders like to see two things in this
category: A. long term credit history, and B. a low usage ratio between the debt and
maximum credit limits. An often seen
mistake is occurs when a credit card gets paid off and the account is then
closed. Once closed, that line of credit
is eliminated, thus reducing the overall amount of potential credit available
and this subtracts significantly from one helpful aspect of the ratio
criteria. Pay off the card, but keep
the line of credit open (unless the
card has an annual fee).
3.
LENGTH OF CREDIT HISTORY: This one is easy…have credit…and do
not close out the account! It helps
your overall credit score to have a documented long term historical
account. This will work to your benefit ESPECIALLY
if the account is current, too. If the
account is not current, diligently work to get current on the payments and then
take heed to #2!
HOW TO STRENGTHEN YOUR CREDIT SCORE
The goal now is to raise your credit score so you cannot be
denied of the things you need or want.
The best way to do this is to work with a lender. With a higher score, you can take advantage
of better terms and lower interest rates which will save money throughout the
course of the loan. If your score is
low and help is needed because dreams of purchasing a home are just that: a dream, far from reality, there are programs
and people that are willing to help you get your finances in order. One of these individuals can be as simple as
a phone call or a few mouse clicks away…and the door to open this avenue is
actually in my office!
The sequence of events to becoming qualified for a loan begins
with simply contacting the mortgage department and applying online. Dan Crance, Senior Loan Officer of Shelter
Mortgage Company (www.DanCrance.com) can assist in this process. If you do not qualify for a loan, Shelter
Mortgage can make arrangements for a third party to work with the applicant to
“clean-up” their finances and put them in a stronger financial position with an
improved credit rating. Depending on the
applicant, the process times can vary (normally it’s just a few months) and
there are fees involved. However, once
the process is completed, you will be referred back to Shelter Mortgage and
your referring real estate agent (for instance, myself!) will be notified. At that point, the door to home ownership is
open for you to walk through!
Ultimately, you are in total control of your credit
score. Remember, YOUR score is
calculated by other individuals and when people get involved, mistakes can
happen...sometimes often.
You should check your credit score on an annual basis just to
make sure that it is accurate and you are not being penalized for false
transactions. Go to https://www.annualcreditreport.com/cra/index.jsp to get a FREE copy of your report. If you see any discrepancies, now would be
the time to have them corrected and they are easy to fix! Also, if you plan on obtaining financing for
a home purchase, it is a good idea to review your credit report BEFORE you find
your dream home. If it turns out there
are issues that may prevent you from receiving the needed financing, it would
hurt twice as much to find your home and know that you could be months away
from purchasing it…and when you are finally in the position to buy, it might
have already been sold! Don’t let this
happen to you. Work on your credit today
because your dream home, be it a rental OR a purchase, might just present
itself tomorrow.
Contact me, Bo Turocy of Carolina One Real Estate, today for more information or for helping you with
any of your real estate needs!
Sincerely,
Bo Turocy
Broker Associate, Carolina One Real Estate
Click HERE to go to my Facebook page!
When not helping people with real estate decisions, click HERE! to see what Bo does in his spare time.
