Now more than ever you may need to consider how important your credit rating (FICO score) is when buying a home or car. It's crucial to have a solid score in order to obtain a good home loan/terms and rate. It's never too late to increase your credit score or work on it.
What is the definition of a credit score? A credit score is a number that is calculated based on your credit history to aid lenders in determining your credit-worthiness. This number is intended to help a lender ascertain the level of risk they may be taking in loaning you money. The system awards points based on information in your credit report. Lenders can predict how likely someone is to repay a loan and make payments on time.
To get the best credit score, you need a mix of different credit types including revolving accounts (credit cards, lines of credit) and installment accounts (auto loans, personal loans, mortgages).
Reduce your balances on credit cards to 75% or less of your available credit. Don't charge more than you can pay off in a month. You don't have to pay interest on a credit card to get a good credit score, and it's a smart financial habit to pay off your credit cards in full each month.
Pay your bills on time. (This is probably the most important of all!)
If you don't already have established credit or you need to rebuild, get a secured credit card. Secured credit cards report your credit payment history information to the credit bureaus just like a regular credit card. They are "secured" by your money. Check with your personal banker.
Your FICO score is based on the following formula:
Avoiding over-inquiries
There are two types of credit inquiries that can be made to your credit report: hard inquiries and soft inquiries.
A hard inquiry occurs when you seek to obtain credit. This happens when you apply for a loan or credit card, for example. Each time you fill out a credit card application at a department store, the inquiry counts as a hard inquiry. Only you can authorize a creditor to perform a hard inquiry on your credit report.
A prospective lender or other creditor will likely be concerned with an applicant whose credit report shows a high volume of hard inquiries. That's because it suggests a carefree attitude in applying for credit or an effort to borrow excessively.
Borrowing too much -- a situation called over-leveraging -- is a potential red flag for creditors. It signals you may face more difficulty in repaying your debts in cash-strapped times than a person who judiciously applies for credit.
If you're going to ping your credit report with frequent hard inquiries, it may be best to concentrate them around the time you apply for a home or auto loan. If you're thinking about applying for a mortgage loan, please contact me for advice and information before starting.
A soft inquiry is one where the inquiry is not tallied on your credit report. A soft inquiry does not constitute a bona fide request for credit. For example, a soft inquiry occurs when you obtain a copy of your report.
There is no fast and easy way to repair damaged credit that took months or years to occur. The law allows negative information to appear on an individual's credit record from seven to 10 years.
Get a copy of your credit report. If you are being turned down for credit you need to be sure the reason is valid. Many credit reports have errors. Dispute any inaccuracies you find.
Get a credit report from all three bureaus. Each one may have different information and maybe errors in your file. You can't know which bureau's data will be used to evaluate your credit application, so check them all.
Addresses / phone numbers of the three major credit bureaus:
Equifax (CBI) PO Box 740249
Atlanta, GA 30374
(800) 685-1111
Experian (TRW) (888) 397-3742
Trans-Union 555 W. Adams
Chicago, IL 60661
(800) 916-8800
(312) 466-8385
If you'd like to know your credit score with no obligation, contact us. We're here to help you rebuild your credit and get you on the right path to home ownership. The lender we work with can pull your credit and let you know where you stand right away. We will also let you know what you need to work on and how. You can get pre-approved for a home loan at the same time if you're interested. This is the best way to find out what you qualify for. You can also start previewing properties for sale in the Cleveland, Ohio area by searching the Ohio MLS on our site. Our RE/MAX team of Realtors are experienced with helping home buyers obtain mortgages and assisting with all the requirements when it comes to home buying in Ohio both FHA or conforming loans. Contact us anytime!
What is the definition of a credit score? A credit score is a number that is calculated based on your credit history to aid lenders in determining your credit-worthiness. This number is intended to help a lender ascertain the level of risk they may be taking in loaning you money. The system awards points based on information in your credit report. Lenders can predict how likely someone is to repay a loan and make payments on time.
FICO scores range between 300 and 850. Ratings are as follows:
- Excellent: Over 750
- Very Good: 720 or more
- Acceptable: 660 to 720
- Uncertain: 620 to 660
- High Risk: less than 620
To get the best credit score, you need a mix of different credit types including revolving accounts (credit cards, lines of credit) and installment accounts (auto loans, personal loans, mortgages).
Reduce your balances on credit cards to 75% or less of your available credit. Don't charge more than you can pay off in a month. You don't have to pay interest on a credit card to get a good credit score, and it's a smart financial habit to pay off your credit cards in full each month.
Pay your bills on time. (This is probably the most important of all!)
If you don't already have established credit or you need to rebuild, get a secured credit card. Secured credit cards report your credit payment history information to the credit bureaus just like a regular credit card. They are "secured" by your money. Check with your personal banker.
Your FICO score is based on the following formula:
- 35% on your payment history
- 30% on the amount you currently owe lenders
- 15% on the length of your credit history
- 10% on the number of new credit accounts you've opened or applied for (fewer is better)
- 10% on the mix of credit accounts you have (mortgages, credit cards, installment loans, etc.)
Avoiding over-inquiries
There are two types of credit inquiries that can be made to your credit report: hard inquiries and soft inquiries.
A hard inquiry occurs when you seek to obtain credit. This happens when you apply for a loan or credit card, for example. Each time you fill out a credit card application at a department store, the inquiry counts as a hard inquiry. Only you can authorize a creditor to perform a hard inquiry on your credit report.
A prospective lender or other creditor will likely be concerned with an applicant whose credit report shows a high volume of hard inquiries. That's because it suggests a carefree attitude in applying for credit or an effort to borrow excessively.
Borrowing too much -- a situation called over-leveraging -- is a potential red flag for creditors. It signals you may face more difficulty in repaying your debts in cash-strapped times than a person who judiciously applies for credit.
If you're going to ping your credit report with frequent hard inquiries, it may be best to concentrate them around the time you apply for a home or auto loan. If you're thinking about applying for a mortgage loan, please contact me for advice and information before starting.
A soft inquiry is one where the inquiry is not tallied on your credit report. A soft inquiry does not constitute a bona fide request for credit. For example, a soft inquiry occurs when you obtain a copy of your report.
There is no fast and easy way to repair damaged credit that took months or years to occur. The law allows negative information to appear on an individual's credit record from seven to 10 years.
Get a copy of your credit report. If you are being turned down for credit you need to be sure the reason is valid. Many credit reports have errors. Dispute any inaccuracies you find.
Get a credit report from all three bureaus. Each one may have different information and maybe errors in your file. You can't know which bureau's data will be used to evaluate your credit application, so check them all.
Addresses / phone numbers of the three major credit bureaus:
Equifax (CBI) PO Box 740249
Atlanta, GA 30374
(800) 685-1111
Experian (TRW) (888) 397-3742
Trans-Union 555 W. Adams
Chicago, IL 60661
(800) 916-8800
(312) 466-8385
If you'd like to know your credit score with no obligation, contact us. We're here to help you rebuild your credit and get you on the right path to home ownership. The lender we work with can pull your credit and let you know where you stand right away. We will also let you know what you need to work on and how. You can get pre-approved for a home loan at the same time if you're interested. This is the best way to find out what you qualify for. You can also start previewing properties for sale in the Cleveland, Ohio area by searching the Ohio MLS on our site. Our RE/MAX team of Realtors are experienced with helping home buyers obtain mortgages and assisting with all the requirements when it comes to home buying in Ohio both FHA or conforming loans. Contact us anytime!
Labels: credit needed when buying a home, Credit Scores, home loans
posted by Cleveland Real Estate at
3/24/2010
1 Comments:
Great article! thank you for investing the time to write it and post it here, I am sure that it will help many. Lenders consider your credit score and your current credit report when deciding whether or not you're a good credit risk. Your credit score is a number generated by using statistical models that factor in elements from your credit report. The number can change when information on your credit report changes and it's calculated at the time a lender requests a copy of your credit report. Different lenders may use different scoring methods, so your score may vary from lender to lender.
Tina
Post a Comment
Subscribe to Post Comments [Atom]
<< Home