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The first thing most lenders will ask you is how's your credit? Most of us say okay, good, bad, excellent but how does that translate into the actual numbers and what do the numbers say about us as a potential borrower? It is important to understand your credit rating and how it affects you. The FICO scoring system goes as low as 300 and as high as 850. Someone with a 300 credit score either has a terrible credit history and never pays their bills OR the person is just starting to use credit and is in the process of building their credit/score. Someone with a 850 credit score can pretty much qualify for anything their credit is impeccable. Most of the US population has a FICO score of 700 or higher. One usually needs a score of at least 700 to 720 or better to qualify for lenders best rates and deals. Buyer's with lower scores can still qualify but their rates will usually be higher and down payments may need to be larger. There are also loan programs that are created for what lenders feel are "high risk loans" so don't give up if your credit score is less than perfect. It is always better to find out exactly where you stand and what you need to do before deciding to put off buying real estate. It is wise to subscribe to a company that will provide you with your credit reports and scores. The reason is that in this day and age of Identity Theft it is best to know what is on your credit report. Some of the providers such as True Credit, Equifax, TransUnion, etc... will send you email alerts if new accounts are opened, balances increase significantly, or if your score goes up or down. Of course there are fees involved and it is best to research which company you want to work with and who gives you the services you want. Once you have your credit report make sure that every account on it is yours. Check to see if balances are correct and payment histories are accurate. If there are any discrepancies you will want to start the process of correcting them as soon as possible. It is better to clean your credit report up prior to the buying process then to suddenly have to deal with it when in the middle of purchasing a property. Way to stressful. Cleaning up a credit report takes a lot of time and patience. One of the things we all think we need to do when in the process of trying to raise our credit score is to pay off all our credit cards and then put them away. This actually might hurt more than help. One of the most heavily weighted factors in credit scoring is how much of your available credit are you actually using. If you are not using any of it then there is a problem and if you are using too much of it there is a problem. What does one do? Get your balances down to less than a third of your limit. Pay off your balance every month and use your credit card to a third of your limit then pay it off. If you are able to do this with all your credit cards every month you will be pleasantly surprised at how your score will increase. The other thing many of us do is close credit cards we don't use. DON'T DO THIS. The action of closing a credit card account even if you don't use it will lower the amount of credit you have available to use, which in turn will narrow the gap between credit you're using and the total credit available to you. The result will be a lower credit score. Something else to keep in mind. The credit card you never use that sits in the drawer needs to be used occasionally or it also might hurt your score. Either remember to use once a month to buy gas or something or set up an automatic payment of a utility bill every month and then pay it off. If you want more information or are seriously trying to build your credit Mike and I would highly recommend purchasing, YOUR CREDIT SCORE by Liz Pulliam Weston. We have read many books on credit scores and reports and found this one easy to understand. We even tried a few things and found them to work. |
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