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  1. Help With Your Credit

    Sep08

    Comments (568) September 08, 2010 | posted by: CWPStaff
    The Good News:  Interest rates are at all time lows.  Home prices are down! The Bad News: Loans are much harder to qualify for.  If you have been trying to get a loan and have not been able to get one, part of the problem may be your FICO credit score.  In today’s market you are going to need a credit score of 700 or more in order to get the best rates available and probably close to 640 to qualify for most any loan. Lower score are not totally out of the question but they are very difficult to get.  Now I realize that most people don’t have a credit score that is over 700 but if you are close maybe only a few simple tasks can put you into this category.  Either way improving ones credit score will help you qualify for a loan or refinancing even if it is not at the “best” rate available.  Keep in mind that there is no “magic bullet” here; only a few ideas that will help you over time.  Some short and some longer. Check out these ideas and see if they may be things you can do to help raise your score.1.      Pull your Credit reports online.  You can get them for free once a year from each of the three credit reporting bureaus. Equifax, Experian, and Trans Union.  They can be acquired by going to www.AnnualCreditReport.com . Don’t be confused by many of the other websites out there that offer free reports but end up charging you for the information or make you sign up for credit monitoring services to get your “free” report.  This is the only official site that can be used by anyone to get these free reports.  The reports won’t give you an actual FICO score but you can see what is in the reports so that you can correct errors that may be on the reports.  If you want the FICO score number you can get that too for a small charge.  Look for errors in the report that may be hurting your score and correct them.  I was working with a client the other day and when she checked her report she noticed that a vehicle that she had just paid off, early I might add, did not show on her report.  Not the loan or the pay off.  This one item alone would have boosted her FICO score quite a bit.2.      Use credit cards to your advantage. If you don’t have much credit available to you and haven’t needed or wanted to use credit much, your utilization ratio may be out of whack.  Utilization Ratio is one of the factors that are used to make up you FICO score.  It is a ratio of how much credit is available for you to use v/s how much is actually being used.  For instance if you only use one credit card and you are currently using 90% of the available credit then you ratio is going to look like you are about maxed out on your available credit.  Conversely if you had the same dollar amount on two credit cards with the same credit limits your ratio would be 45% as opposed to 90%. Same dollar amount twice as good of a ratio.   Three cards would be even better.  You want to show a 20% to 30% ratio if at all possible that is the ideal.  I would add here that the use of a credit card requires a lot of self discipline including paying the balance off each month if at all possible to avoid unnecessary interest charges. 3.      Pay down some debt.  This has the effect of improving your debt-to-income ratio as well as improving your FICO score. A debt-to-income ratio of 36% or less is your goal here including your proposed new mortgage payment.  Nothing else will improve your chances of getting a new loan more than a low debt-to-income ratio.4.      Don’t close an account just because you are no longer using it.  On the surface that sounds a little insane but when you think about it that additional line of credit that is available to you increases your utilization ration. (see #2 above)5.      Use your credit regularly and wisely.  Pay on time every time or better yet pay the balance off each month. A good FICO score doesn’t happen because you have sound personal finances, including no debt.  FICO scores only reflect a measure that shows you have a history of responsibility using, managing, and repaying your debt on an ongoing basis. Like it or not the FICO score is a major determining factor in obtaining a home loan.6.      Use the skills of a good Mortgage Broker.  Whether you use a loan officer at your local bank of and independent broker, they have a lot of experience working with people to improve their FICO scores.  Find an individual that you feel comfortable working with and above all be honest with them about you financial condition and they will be happy to help you qualify for that new home loan.Well, there you have a few ideas to help you improve your FICO credit score.  Some of them can be done quite rapidly and some others like paying down debt can take a little longer.  All are worth the time it takes to monitor and improve your FICO score.  An improved score will not only get you the loan for that new home you are wanting but it can also get that loan for you at a lower interest rate.  Don’t think the interest rate matters that much? Consider this scenario:  Lets say that you are taking out a $200,000 loan at 5% interest for 30 years.  The payment is $1074.60 principle and interest.  If you could get that loan at 4.9%, just .1% difference, your payment would be $1062.43 or $12.17 less each month.  That $12.17 equates to $4,381.20 extra interest over the 30 year life of the loan.  Another way to look at that is that it is equal to 4 less payments on the tail end of the loan.  I don’t know about you but I would rather have that money in my pocket instead of giving it to a bank.  Good luck with your efforts to improve your FICO credit score.  Then a Realtor® can help you find your new home.Paul Bowen Realtor® paul@countrywidepeop.com208-351-3312                   
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