When lenders offer you a loan, they base the terms they offer on the "risk" to them. And before taking this step they want to know two things regarding how you will handle the loan:

     1. Your ability to pay it back, and
     2. Your willingness to pay it back.

In order to get a picture of these factors, lenders study your:
a. Income-to-debt obligation ratio to determine your ability to pay the loan back and
b. Credit score regarding your willingness to pay it back.

       The FICO scores:

• Are the most widely used credit scores.
• Were developed by Fair Isaac & Company, Inc. (and named after their inventor) and
• Range between 350 (high risk) and 850 (low risk).

      Credit scores:

• Only take into account information contained in your credit profile and
• Do not factor in your:
  
  1. Income
  2. Savings
  3. Down payment amount, or
  4. Demographic factors such as:
     a. Gender
     b. Race
     c. Nationality or
     d. Marital status.
  
  
• Were invented to begin with because they do not consider demographic factors.

1. The word "profiling" had a negative connotation then as it as does today.
2. The scoring occured as a way to take into consideration only that which was relevant to one's willingness to repay a loan.

• Take into consideration:

         1. Only the following details:
   
            a. Past delinquencies
            b. Derogatory payment behavior
            c. Current debt level
            d. Length of credit history
            e. Types of credit and
            f.  Number of inquiries

2. Positive as well as negative information in your credit report.

Whereas late payments will lower your score, establishing or reestablishing a good track record of making your payments on time will raise your score.

Different weights are given to various portions of your credit history:
   
1. Thirty-five percent of your FICO score is based on your specific payment history. 
2. Thirty percent is your current level of indebtedness. 
3. Fifteen percent each is the time your open credit has been in use (ten year old accounts are good, six month old ones aren't as good) and types of credit available to you (installment loans such as student loans, car loans, etc. as opposed to revolving and debit accounts like credit cards). 
4.  Five percent is pursuit of new credit -- credit scores requested.

   For you to get a score a credit report must contain at least:
  
   1. One account which has been open for six months or more, and
   2. One account that has been updated in the past six months.

The availability of sufficent information to generate an accurate score is ensured by means of this method.

If you do not meet the minimum criteria for getting a score, it may be necessary for you to establish a credit history prior to applying for a mortgage.

_____________________________________________________________________________

How can you improve your credit score?

It is virtually an impossibility to change your score in the time period between when most people make the decision to buy a home or refinance their mortgage ... and the time of application. So one cannot say that this can occur "on the spot."

One can, however, implement and live with strategies to make certain that your score is as high as possible when you apply for a loan.

1. Make sure that the information each of the three credit reporting bureaus has on you is up-to-date and consistent.
2. Order a copy of your credit report approximately once a year, and dispute any inaccuracies.

Note: In theory, your score goes down if a series of credit reports is requested on your behalf during a limited amount of time, and it remains this way until time passes without any inquiries.

Changes in the law though have made "consumer-originating" credit report requests not count to such a degree. Also, a series of requests in relation to getting a mortgage or car loan is not treated in the same manner as a number of credit card requests occuring in a limited time. This is the case because the credit bureaus, and lenders, realize that people request their own credit reports to maintain an awareness of what is in them, and smart consumers shop around for the best mortgage and car loans.

There is no cause for concern about unsolicited credit card solicitations in the mail as they do not count against your credit report.

   The two main components of your credit score are:

1. Your payment history and 
2. The amounts you owe.
 
    a. Bankruptcy filings and foreclosures, can stay on your credit report for as long as 10 years and can significantly lower your score. It is never a good idea to take on more credit than you can handle.

    b. Late payments work against you. It is extremely important to pay bills on time, even if only the monthly payment.

    c. The size of the balance on your open accounts is a factor so lower balances are better.

          Do not "max out" your credit lines.

It is said that with the careful management of your credit, it is possible to add as much as 50 points per year to your score.

Joan Lemont

YOUR FLORIDA
MORTGAGE SPECIALIST

and

Feng Shui - Home Staging Consultant

Visit my Real Estate website and check out properties of interest to you.

_____________________________________________________