Ann Bennett - KELLER WILLIAMS REALTY / Metropolitan



Posted by Ann Bennett on 1/24/2019

It's easy to get stuck without a mortgage approval or with a smaller home loan than you want, just because you don't understand how your credit score works. Most of the things you've done to prepare: budgeting your income, balancing your bank accounts and saving up for a down payment, aren't reflected in your FICO credit score. It doesn't even show how much you can afford.

So whatís the point of your credit score?

It tells your lender what youíve done with your previous credit. Whether anyone has been willing to lend you money, how long youíve kept it and whether you pay it back on time. They keep the actual algorithm at FICO secret, but there are two main factors that you can affect.

Late Payments

These are easy to understand and fix. Ready? Pay them on time. Thatís it. Each time you are late on a debt payment, whether itís a credit card, school loan, mortgage, or car loan it dings your credit score. Thatís the easy part. Now for some finance math.

Debt to Credit Ratio

Surprisingly, you are in complete control of this part of your score too. While it sounds like this is a ratio of how much you owe to how much you make, it's not. The debt-to-credit ratio shows how much you owe based on how much credit you currently have available. That means if you have a $5000 credit card, and your friend has a $2000 credit card, and you both OWE $2000, you will have a higher score than your friend because your ratio ($2000/$5000) is lower than hers ($2000/$2000). The higher this ratio gets, the less likely lenders are to give you more credit. Most professionals suggest you try to keep your usage below 30%. That means your balance on that $5000 credit card should stay below $1500. This practice works better for you as well, keeping some cushion in your accounts for emergencies.

Managing your Debt-to-Credit Ratio

There are a few tricks beyond merely using less of your credit to help keep this number under control. First off, pay off as much of your debt as possible. You want to keep that used debt down as low as possible when trying to apply for new debt. Second, don't close your paid-off accounts. While it may seem like the optimal thing to do, remember that total credit number? You want to keep that number high so that your used credit appears lower. So, you've paid off that credit card? Great! Now chop it up or put it in a hidden drawer and keep that available credit without using it. Lastly, be careful about opening new accounts. While it lowers your debt-to-credit ratio as long as you donít actually spend from them, your score also reflects the age of your accounts. The longer ago you applied for and got credit, the more likely it is you will qualify for new credit. Donít waste that new credit qualification on anything else besides your home loan.

Want to know the best lenders to apply with once you've got the best score? Ask your real estate agent for their top recommendations for your situation and use their expertise to ease the qualification process.





Posted by Ann Bennett on 3/29/2018

If you have seen your latest credit score and feel like youíre less than financially fit, donít fret. Thereís plenty of reasons why people end up with bad credit. Thereís also plenty of things that you can do to amend and work with your bad credit. 


The Factors


Mortgage lenders look at a variety of factors when it comes to your credit and determining if youíre ready for a home loan. These include:


  • Age of credit
  • Payment history
  • Amount of credit debt


If you have opened new accounts frequently or ran up credit card balances without paying them down, these behaviors could negatively affect your credit score. 


Changing Your Habits


Just changing one of these bad habits can help your credit score in a positive way. This also means that a bad credit score doesnít equal not being able to get a home loan. Your home loan may just come at a higher price. 


What If Youíre Turned Down For A Loan?


You can ask your lender why youíre unable to get a loan. Some possible reasons that youíre getting rejected:


  • Missed credit card payments
  • Failure to pay a loan
  • Bankruptcy
  • Overdue taxes
  • Seeking a loan outside of what you can afford
  • Legal judgements
  • Collection agencies


If you have defaulted on a loan, missed payments or filed for bankruptcy, chances are that youíll have trouble securing a home loan. Other factors that can affect your credit score include negative legal judgements that have affected your credit, or having a collection agency after you. 


How To Fix It


If you have bad credit, itís not the end of the world. Itís possible that lenders can give you a loan if your credit score isnít too low. You could, however, face higher interest rates as a penalty for a low credit score. This is due to the fact that youíre more likely to default on a loan based on your risk factors. 


You can improve your credit score by:


Keeping existing accounts open

Refraining from opening new accounts

Trying not to approach too many lenders to find the right interest rate. Every time you get a credit check, it affects your score. 


Finding A Loan


Signs of bad credit can take awhile to disappear from your credit report. Sometimes, you have the opportunity to explain to lenders what these factors are in detail so you can secure the loan. There are even mortgage companies that assist you through the loan process to give you a boost in getting the loan.


FHA Loans


FHA loans are a great program option especially for people with bad credit. These loans offer low down payment options and have lower credit score standards. FHA loans have been helping people to secure their first homes since 1934.


If you have bad credit, the dream of home ownership is still possible. If youíre early in the process, get to work and keep that credit score up so that when you head out to apply for a loan, youíll be able to secure it.         




Categories: credit score   home loans   loans  




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