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Credit Scores

Credit scores have been around since the 50's.Today the use of credit scores has become increasingly important in obtaining any type of loan. Credit scores are a scientific way of assessing how likely a borrower is to repay a loan when financing a house, a car or even obtaining a credit card,. While credit scores are important for every application, first time home buyers tend to need slightly higher credit scores due to the fact that they do not normally have an extensive credit history. Here is an excellent presentation by an attorney on improving credit scores.

Each of the three major credit scores reporting agencies utilize the same credit scores models developed by the California based company Fair Isaac Company (FICO), yet each company can give you different credit scores. Each of the bureaus believes some credit characteristics to be more important than others.

Credit scores can range form a low of 300 to over 800. Many people believe that credit scores are only based on whether or not you pay your bills on time. Credit scores are actually based on a complex system analyzing different characteristics of your credit, such as:

  1. Payment history, including any collections, judgments, foreclosures and/or bankruptcies.
  2. The number of inquiries into your credit report in the past 6-12 months. A large number of inquiries can indicate that you have been trying to obtain too much credit too quickly.
  3. The amount of outstanding balances compared to your available credit limits. A borrower with $4,995 on credit cards and loans with $5,000 in credit limits will be penalized. Even if the payment history has been perfect.
  4. How long accounts have been open. The longer that you have had good credit the better.

These are only a few of the over 30 different factors used in determining your numbers. None of the 3 major bureaus have been required to divulge their formula for determining these numbers. However, they must still abide by the Fair Credit Reporting Act and they do not consider the following:

  1. National origin, race, marital status, gender and religion.
  2. The amount of money you might have in the bank.

Banks and lenders are not required to disclose your number to you. However, I will and you should always ask. I will also provide you with a copy of your report upon request.

If your number is low, there are no quick fixes. But there are some things to keep in mind when trying to maintain a high number:

  1. Periodically keep tabs on your report for inaccuracies. You can obtain a copy from each of the major reporting agencies.
  2. Pay all your bills on time.
  3. Use only the accounts you need and can afford to pay.
  4. Don't max out your cards.
  5. Don't apply for or open many accounts in a short period of time.
  6. Don't try to change a number overnight by suddenly closing or opening accounts. This could backfire.

Learn more about Loan Modification. If you can not refinance, it may be the best way to save your home today.

If you have had credit issues in the past, it is absolutely critical in today's market that they be addressed before you try to get a mortgage. I have referred my clients to CreditFX for the past 5 years. Exceptional customer service and I am often stunned at what they have been able to have removed from people's reports, allowing my clients to qualify. Their charge of $199 is one of life's true bargains.

As a Certified Mortgage Planning Specialist, I offer an analysis of your situation today can make suggestions on how small changes in how your consumer and mortgage debt is structured today can have a life changing effect in the years to come.  Read more about this free, no obligation service.


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