Today I want to talk about understanding and building your credit. You must understand credit in order to build credit properly. In today's real estate market, I'm faced with potential buyers struggling to become homeowners however continuously blocked by credit issues. Although you cannot build credit overnight, you can establish good credit history within 6 months or what I call "good behavior" period.
Understanding FICO Scores:
There are several aspects to how a FICO score is determined. A score can range between 300-850; the higher the better. The goal is to get your score at 720 or higher however having all 3 credit bureau scores above 620 can get you into a home today. Just this week, I handed a new home owner the keys to her new home with a middle score of 616 so it can be done.
35 percent Payment History: "Having a long history of making payments on time and no missed payments on all credit accounts is one of the most important items lenders look for."
30 percent Amount Owed: "This measures the amount you owe relative to the total amount of credit available. Someone closer to maxing out all their credit limits is deemed to be at a higher risk of making late payments in the future and this can lower their credit score.
15 percent Length of Credit History: "In general, a credit report containing a list of accounts opened for a long time will help your credit score. The score considers your oldest account and the average age of all accounts."
10 percent New Credit: "Opening several new credit accounts in a short period of time can lower your credit score. Also multiple credit report inquiries can represent a greater risk, but this does NOT include any requests made by you, an employer or by a lender who does so when sending you an unsolicited, "pre-approved" credit offer. Also, to compensate for rate shopping, the score counts multiple inquiries in any 14-day period as just one inquiry.
10 percent Types of Credit in Use: "Your mix of credit cards, retail accounts, finance company loans and mortgage loans is considered."
There are 3 main companies that collect credit information; Equifax, Experian and TransUnion. You can purchase all 3 scores and reports at www.myFICO.com for $40.00 and compare. If you find inaccurate accounts, submitting an online dispute request is a very common practice. Accounts less than 2 years old and/or over $500 must be paid and resolved PRIOR to you contacting a mortgage lender. Any late payments in the last 12 months are worth contacting the creditor to see what you can do to have removed.
If you have filed bankruptcy Chapter 7, you must wait 2 years and Chapter 13 wait period is 3 years before you may qualify for a mortgage loan. Repossessions have a 3 year wait period and rental history with an apartment complex must be clean for 12 months. And a Judgement must show paid. Contacting a reputable credit repair company such has Halo Credit Solutions to help resolve bad credit while you build NEW credit is the best route.
Tips to Building Credit:
1. Apply for a credit card but apply for a credit card that you are likely able to meet all requirements. Before applying, do your homework by making sure the creditor reports to credit bureaus otherwise it defeats the purpose.
2. Create a spending plan. Use a credit card for purchase however keep the balance under $25 or at least a balance that you know you can pay IN FULL on time. Not just minimum...IN FULL. Getting gas or a few items at the grocery store will do the trick.
3. Opening a SECURED card is a great way to build credit. Orchard Bank and First Premier Bank are my recommendations
4. You need 2-3 major credit cards. Reason: you can not have a dormant credit card. You must be able to rotate your credit every few months. Having a dormant account can harm your score as well.
I really hope this information will help you. I want potential home owners to walk into a lenders office with confidence and secure in knowing they will be approved for a loan. Debt to income ratio is a lending factor as well however the majority a denied loans are due to poor score. If you are in the Charlotte area, please do not hesitate to contact me for a FREE home owner consultation meeting. Contact me directly:
Yolanda Hayes
www.soldbyyolanda.com
soldbyyolanda@gmail.com
704-839-6005
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