Understand Your Credit Score
Your credit score is not a static number. In fact it can change very quickly, sometimes for surprising reasons. So, it is bests to pay attention to your scores before you decided to buy a house. Here is some information that may help you understand your scores and, perhaps, head off unexpected problems:
 |
| Understand your credit score before buying. |
|
|
What Counts:
Premier Mortgage Group estimates how much each of five factors affect your credit score:
1. About 35 percent involves your payment history.
2. About 30 percent is determined by how much you owe when compared to your available credit.
3. Approximately 15 percent is determined by the length of your credit history.
4. Some 10 percent involves newly opened credit. New credit can bring your score down.
5. Roughly 10 percent is based on the kinds of credit you have.
The three credit agencies,
Experian,
Equifax and
TransUnion sometimes have different information from creditors, meaning your scores may be different.
Keeping Your Score High:
Advantage Credit of Colorado offers these tips about keeping your score in good shape:
1. Pay bills on time or early.
2. Do not close old revolving accounts you no longer use.
3. Do not open new accounts unless absolutely necessary.
4. Do not co-sign loans for other people.
5. Report fraud immediately. Contact your credit card companies, the credit bureaus and your banks.
6. If you will soon buy a home or refinance your current dwelling, do not run up credit card balances or make major purchases.
7. Monitor your credit by ordering copies of your three credit reports once a year. You can do this at
www.annualcreditreport.com. Credit scores range from 350 to 850. Generally speaking, you should have little trouble getting a mortgage loan if your score is above 700. However, lenders are becoming more flexible and some will accept borrowers with considerably lower scores.
Reading Your Credit Report:
The National Association of Realtors® suggests you look for and report the following kinds of mistakes in your reports:
1. Late payments more than seven years old should not appear in the report. Similarly, collection or “charge-offs” older than seven years should not be noted. A “charge-off” is recorded when your creditor declares your unpaid debt as a business loss. You may still owe the money.
2. Paid-in-full installment loans and loans settled for less than the full amount should show a zero balance on your credit report.
3. You should recognize every account in your report. Identity theft or inaccurate reporting by creditors can lead to incorrect accounts appearing in your report. Investigate these quickly and vigorously!
4. Since length of credit history counts, check the accuracy of dates you opened your accounts.
5. Credit limits should be reported correctly. You want to keep balances under 50 percent of allowable credit. Even lower balances will be better. (Some say you should keep it under 30 percent)
6. Credit should be properly categorized. A home equity line of credit is a second mortgage, not a ordinary line of credit.
7. Understand the “reason codes.” These help explain your score and may tell you how to improve it. However, the Realtors® association suggests that people with good credit scores ignore the codes, “as making changes could actually result in a lower score.”
8. If you closed an account it should NOT be reported as an account closed by the bank or other issuer.
The organization offers one final piece of advice. “Think twice before closing that credit card. This shrinks the available credit listed on your report and hurts the credit utilization ratio.”
Damage Points:
New information was recently released about the impact specific credit "mistakes" can have on your score. A maxed-out credit card drops your score 10 to 45 points; a payment 30 days late will damage your score 60 to 110 points; a debt settlement (presumably for less than what isowed) will hit your score for 45 to 125 points; a foreclosure will cost you 85 to 160 points; and bankruptcy will drop your score 130 to 240 points. It has been suggested that people with higher scores will see their scores drop more than those with lower scores.
––––––––––––––––––––––––––
Ron Rovtar, Cherry Creek Properties, LLC, is a broker associate in Boulder, CO. He compiled this information from a number of sources. Please call Ron with all your questions. He can be reached at 303.981.1617. To learn more about Ron, please visit his website. For more about life in Boulder County and nearby, check out our facebook page. Ron Rovtar does business as Front Range Real Estate, Ltd. All photos © Ron Rovtar
#Credit
#CreditScores
#Homes
#Mortgages
