credit score

Credit Healthy – Credit Scores, Lenders, and Pre-Approval Letters

July 1, 2019 by Joyce Marie Jackson Leave a Comment

Agent Joyce Marie Jackson returns for another installment in her “Credit Healthy” series with information about the all important pre-approval. A very important step in the process of buying a home, a lender’s pre-approval relies on several factors, including your credit score. Let’s hear from Joyce…

Too often, people are more interested in their credit score than what’s in their credit report. The truth is a person can have a good credit score and still not qualify for a loan or credit card for a number of reasons. This concern opens the door for one of the most important questions a Realtor will ask a potential buyer, “are you pre-approved?” This important question may cause a buyer to stop communicating with the Realtor…for some misunderstood reason, for some buyers, the question seems offensive and invasive.

If it was asked incorrectly, I understand. However, it is one of the most necessary questions a Realtor will ask a buyer in addition to asking if you are already signed with another Realtor. Too often a person pulls their credit history and gets their credit scores through a number of sources for free or a small fee. The scores that come with this type of report may show credit scores at a higher number than what a lender will pull. It is frustrating trying to understand why the scores are so different. More to the point, why are the Lender scores usually much lower than what the buyer can pull independently?

There are a few reasons why. Most lenders will pull the FICO (Fair Isaac Corporation) score and there are several types of FICO scores: FICO Auto Score (250-900), FICO Bank Card Score (250-900), and FICO Mortgage Score (300-850). Other types of FICO scores vary: FICO 5, FICO 2, FICO 4, FICO 8, and FICO 9 all exist. They are similar and different. In addition, all lenders may not use the same FICO score algorithm. The FICO score will consider more of your debt than other types of credit scoring systems.

Once a lender receives your three credit scores, lenders have a formula that they use to determine your final score. One example could be, from three credit bureau, your scores were 730, 685, and 710. The highest and lowest score is knocked out. The middle score will stand as the winning number, 710.

With other types of scoring systems such as Vantage, all debt may not be included therefore resulting in a higher credit score.

These are just a few reasons why your free credit scores may be higher than the one the lender will pull. So, what should you do? You can still get the credit report and use it to clean up anything that is not yours or should not be there. Once you’ve done the credit clean up, then allow a lender to pull your report and provided you with the scores that will be used to qualify you to purchase your home. The Lender will go over the report with you and provide tips if needed to help boost your score. After the lender receives requested documentation, verifies employment, and the credit score is right, you will receive a pre-approval letter naming the amount you can purchase at. Sounds like a plan. So, the next time a Realtor asks if you are pre-approved, don’t let that question scare or stop you from moving forward. Knowing the answer to that question will open the door for a successful home buying adventure.

image courtesy of karmadude

Credit Healthy – Build It Right From Ground Zero

June 5, 2019 by Joyce Marie Jackson Leave a Comment

When it comes to buying a home, few things are more important than your credit. The better it is, the more buying power you have. In this article the first is a series of posts entitled “Credit Healthy,” agent Joyce Marie Jackson breaks down your credit score and takes a look at what it takes to build your credit health from the bottom up. Whether you’re a first time homebuyer or this is one of many purchases you’ve made in your lifetime, it pays to understand what goes into your credit score so you can be prepared when it comes time to buy. Enough from us…we’ll let Joyce take it from here…

Too often a buyer is so excited about buying a home, the basics are forgotten.

You’ve saved some money, that’s good, and maybe paid down some of you debt. Your lease is coming to an end soon, so I guess it’s time to shop for a home. Is that it or are there other steps?

Here’s an option:

Contact your financial institution and inquire if they offer a credit score and/or monitoring plan for free or for a small fee. You may ask yourself, “Why do I need to do this?”
The reason is because before you can start a plan, you must know where you stand. Knowing what’s in your credit report is the first step in identifying the health of your credit worthiness.
Your credit worthiness is what a lender will use to approve or disapprove you for a mortgage loan. It’s all in the report, but it’s up to you to make sure it’s accurate.
Know how your FICO score is determined.

35% – Payment History – Always make your payments on time.
30% – Amounts Owed – Knowing your credit limit is key. The amount you owe and the amount your have available will determine your utilization ratio and debt ratio.
15% – Length of Credit History – The age of an account is important. The longer you have a particular credit card, the better. If you decide to pay it off, that’s great! Just don’t close it out. Closing out a credit card that you’ve had for a long time can lower your credit score.
10% – Type of Credit Used – Similar to building your retirement portfolio, your credit should also contain a mixture of different types of credit, such as credit cards which are usually revolving credit, fixed loans, and other mixtures of credit.
10% – New Credit – New credit and the available amount. Don’t max it out.
So, 35+30+15+10+10 = 100% of your FICO score.

List your expenses, make a budget and track your spending.

You’ve identified what’s in your credit report and taken steps to make the report accurate. You know what makes up a credit score and what parts you may need to work on in order to increase it. Saving is also key and must be part of the budget. In addition to having a great credit score and low to no debt, there is still a need to have available funds for various buyer expense such as inspections, appraisal, earnest money, option money, closing costs, and down payment. Sounds scary and it can be, but if you are prepared it will be less stressful. Does this mean buyers have to have perfect credit and be debt free before they should purchase a home? No, it just means that the more you know and the better prepared you are, the better your home buying experience will be. So, “Build It Right from Ground Zero.”

image courtesy of zeevveez

How Credit Can Affect Your Ability to Buy a Home

February 24, 2016 by khproperties Leave a Comment

Credit is the one word we can think of that no one really likes. People with good credit, people with bad credit – everyone gets a little nervous when they think about the magical number determined by a secret algorithm that sums up your entire financial life in one go. The FICO credit score, the defacto standard for scoring your financial well being, is shrouded in myth and mystery and affects just about everything you do in life. And when it comes to real estate, your score is one of the biggest determining factors in whether you’ll be renting or buying your next home. So what can you do to keep your score healthy and happy so that you can move into home ownership? While there is no perfect answer for everyone, there are certain items you should be aware of that will help keep those numbers up so that you can buy a home.

Paying your bills on time. We all slip from time to time and forget to pay a bill by its due date. Whether it’s because you just didn’t have the money until a few days after the due date or it simply slipped your mind, you need to pay your bills on time. Banks look to this factor to see that you have the discipline and structure to keep up with payments. Not only does it affect your credit score, but when a lender looks at your full credit report and sees consistent or frequent late payments, they start to wonder if you’re a credit risk. The website Credit Karma shows that people with fair to excellent credit scores pay their bills on time more than 95%. As credit scores go down, so does the rate of on time payment – FICO scores of 500-599 report 75% on time payment rate, while scores under 500 report 60% on time payment rates.

Debt to income ratios. You debt to income ratio is the balance of what’s coming in and what’s owed. Have large debts and a small income? Not good. How do you figure out your ratio? Take the total of your monthly debts (rent/mortgage, car payments, credit card payments, other loans, etc.) and divide it by your gross (not net) monthly income. Convert the decimal to a percentage (move the decimal two places to the right) and you now know your debt to income ratio. All lenders differ on what they look for, but most avoid anything over 30% and 40% is considered very high. The higher that ratio goes, the higher the risk for you to repay the loan you’re trying to apply for.

Credit Cards vs. Mortgage Debt Although it won’t help the first time home buyer, having a mortgage can actually be a boost to your credit. Things like student loans and mortgages are often weighted differently because of their purpose, whereas credit card debt can be seen as a negative, because we use those to buy things without any real value. That’s not to say that credit cards are bad, you just have to be careful how you use them and how many and how much you have available.

Speaking of credit cards… There are a couple of issues with them that you’ll need to watch out for. First, don’t max them out. Second, don’t have too much or too little credit available. Third, you want to have a strong history with those credit cards, from paying them in a timely fashion and not carrying a large balance to not coming near your spending limits. Credit card debt is one of the trickier items to understand, because each piece of the puzzle affects the larger whole.

Cash. Having a reserve fund can help balance things out when you sit down with a lender. Not only will you need cash for your down payment, but lenders want to see reserve funds so that you can weather any bumps in the road ahead. Cash can sometimes make up for slightly lower credit scores as well.

Your Credit Score is a Complex Thing

These are just some of the issues affecting your your ability to get a loan to purchase a home. The best way to really understand your personal situation is to sit with a local lender and have them take a look. Not only will they pull the report and ask questions about your income and debts, but they will also take a look at the entire picture as a whole in order to come up with the best plan of action for you. Sometimes it makes sense to wait, sometimes you’re ready then and there, but they can help give you the info and knowledge you need, plus they can help you see some of the things you could do to improve your credit score for both the short and long term that could help get you to where you want to be.

If you need recommendations for a quality, local lender who can analyze your situation and build an action plan for you, contact and one of our agents and they can help you find the lender that best suits your needs.

image courtesy of Jigme Datse

Your Credit and Buying a Home

January 15, 2013 by khproperties Leave a Comment

Everyone knows that when buying a home, your credit score comes into play. What many people don’t know is just how good is good enough to buy a home, how it can impact your chances of buying a home, and what to do if you have bad credit and need some help repairing it. Credit can be mystifying at best, but with some common sense factors and a little knowledge, you can control your credit and keep yourself on the “plus” side so that you can buy a home easier and with more favorable terms.

What is a good credit score?

Credit score requirements change quite often as lenders adjust their rules and regulations to safeguard themselves. Immediately following the recent housing crisis, credit score requirements were raised, making it difficult for many buyers to get a loan, even if they had “decent” credit.

These days, 740 or higher is considered excellent credit. FHA and VA loans want a minimum of 620 and conventional loans, depending on down payment, look for a minimum of 640.

Please note: these credit scores can change at any time and are not considered fixed numbers. Please check with your local lender to see what loan programs they have and what their credit score requirements are.

How does my credit score affect my home buying?

The credit score (FICO) is a mathematical computation of all your credit history represented by a single number. This single number represents your credit worthiness – basically put, whether or not a bank can trust you to repay them their money in a timely fashion. If you have a low credit score, you are considered a higher risk for non-payment (whether it be default or late payment). The higher the risk, the less likely a bank is to lend you the money.

As with anything in life, the more trustworthy the lender feels you are, the more likely they are to lend to you…and the better terms you might receive on that loan. Of course, credit isn’t the only factor lenders take into consideration when making their decisions, but it is a big part. You can have excellent credit, but no cash on hand and be turned down for a loan. Your credit is the first item that helps a lender determine if they should dig further and take a look at your income, debts, and additional factors that will in the end determine your loan and the terms you receive for that loan.

How do I repair my credit?

The number one piece of advice for improving your credit score is to pay your bills and pay them on time – every time. Late payments are one of the worst things to do to yourself if you’re trying to improve or repair your credit score.

There are a few things you can do to repair your credit, the first is to know what’s in your credit report. You can access your credit report, for free, once a year at Annual Credit Report. We suggest you pull one every year in order to keep an eye out for any mistakes or fraudulent activity (identity theft). Take a look and make sure all the information is accurate. See anything that seems fishy? Contact the credit bureau and talk to them about the item. It may be something you forgot about or it might be something that you can dispute.

Sit down with a lender and discuss your plans to purchase a home. Often, if your credit score is borderline, they can offer specific steps to improve your score enough to get you above the minimum threshold for the loan. Occasionally, their advice might surprise you, so be sure you talk to someone who knows the ins and outs of credit first. We’ve seen instances where it was better to pay off a $15 charge than payoff a $5,000 charge, which may seem counter-intuitive when trying to improve your score.

If your credit score is really low, you may want to consider a credit repair company. There are many out there and some have not-so-great reputations. Be very careful and make sure you read all the fine print in order to be sure you know what you’re getting into. If you do go the credit repair route, be sure to remain diligent and follow all instructions, so that the process goes as smoothly as possible.

Special thanks to Luis Sandoval Jr. for asking the questions that led to this post.

image courtesy of The Consumerist