Posts tagged with "Credit score"

Just HOW good does one’s credit need to be?

I had an email from a prospective buyer yesterday saying she was going to hold off on buying until she got her credit in order.  Now, that can certainly be a good strategy.  But just how good does one’s credit have to be— before the time is right to get a mortgage and buy a house?

For the most part (ie. there are exceptions to everything) as long as you are above a certain threshold, how much above the threshold makes very little difference.  For instance, whether your credit score is 741 or 759 makes absolutely no difference whatsoever.  And the difference between 719 and 779 might amount to $8 on your monthly payment.  I doubt that for most people waiting a year to bring one’s score up to save $8/month makes much sense.

The minimum required score changes from time to time, and there is some variability between lenders.  As a general rule, you’ll find mortgage brokers to be more flexible on credit scores than banks.  Currently, you can find lenders who will make competitive, fairly priced, fixed rate mortgage loans based on the following credit scores:

VA- many lenders make VA loans with scores starting at 620.  For those close to that mark, they’ll probably insist that there be no loan, rent or credit card payments more than 30 days past due during the most recent 12 months.

RD- lenders making these loans often dip to scores beginning at 600, and for the lower scores will have similar requirements to VA lenders.

FHA- lenders making FHA loans may dip even lower… say into the 580 range.  And once again, the lower the score, the more likely there will be stricter requirements on the absence of payments 30 days late in the past year, and on proving one’s rental payment history.

Getting a mortgage can be a PITA.  There is no doubt about that.  And for those with lower scores, an extra dose of patience and determination will likely be required.  However, with the right attitude, one with a lower credit score can obtain a mortgage and buy a new home.  To get the facts, just ask.


How your credit score is determined

Everyone realizes that, when it comes to determining your credit score, payment history matters.  What most don’t realize is that payment history comprises only 35% of one’s score.

The second biggest factor, weighing in at 30% considers the amount owed on all accounts versus your total credit line.  Keep the balances on your credit cards under about one-third of the credit limit and you’ll help boost your score a good deal.  Fail to do that, and you’ll work against yourself.

The remainder of one’s credit score is determined by the amount of new credit (a negative factor), length of credit history (the longer the better), and the types of credit you have (mortgages and loans are better than finance company credit or credit cards).  Manage your sources of credit accordingly and your score will benefit. 

And btw, when it comes to payment history, mortgage payments matter most, followed by loan payments and auto leases, and finally credit card payments.  Most other payments don’t factor in as most other creditors (think utillity companies, insurance companies, etc.) do not report to the credit bureaus.  And here’s another thing about payments to keep in mind.  As long as you’re not 30 days or more late with your payment, it will still be reported as having been paid timely.  So, do whatever you can to be certain that all mortgage, loan and credit card payments are received by your creditors within that 30 day timeframe.

Take care of your credit bureau file, and it will take care of you.  If you have questions concerning your specific situation, let me know.



Credit Cards & Credit Scores

So late yesterday I’m on the phone listening to someone tell me how they’re going about raising their credit score into the “can do a mortgage range”— and I realize that whoever told them how, told them wrong.  When it comes to credit cards, it’s not the total amount of the debt that brings you problems.  No, it’s the amount you have outstanding on any given card versus the amount of the credit line.  This guy was telling me how he’d paid off all of his small balances (totalling $5000) and only had one card with $5,000 on it.  That card was maxed out, and lo and behold that little situation was actually driving his credit score (not up, but) down!

30% of one’s credit score has to do with credit usage.  Surprising to many, one maxed out $5000 card does way more harm to one’s credit score, than five $3000 cards with $1000 balances each.  It’s the same total amount outstanding, but since the amounts outstanding are about 1/3 of the credit limit there is next to no negative impact on one’s score.  In fact, low balances relative to credit limits implies conservative use of credit and actually enhances one’s score!

So, if you want to raise your credit score, when you go about paying down debt, bring the balances down relative to their credit limit.  Rather than setting a dollar amount as your goal, try setting a certain percentage of credit limit use as your goal.  Work those limits down below 33% and you’ll see your credit score rise, rise, rise!!!