Improving your Credit Score

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Buying a Home: Practical Advice to Improve Your Credit Score

Buying a home and securing a mortgage is one of the largest financial activities you will ever engage in. And while your income may be above average, your future employment is secure, and your down payment is in hand, the condition of your credit or FICO score plays an enormous role in the process. While most people are cognizant of the fact that credit scores impact all sorts of financial transactions, getting that score to the highest possible number (850 is the highest FICO score; 300 is the lowest) will get you the best interest rate for your mortgage. FICO, or Fair Isaac Corporation has made the process of checking your credit score easier but the effort to fix a damaged score is still requires a great deal of effort. So I thought I’d take the opportunity to offer some practical advice for fixing that score.

What is FICO?

In my time selling real estate at the Jones Group @ Sunriver Realty, I have seen more deals for the perfect home buying opportunity hit an avoidable road block than I can list here. That’s not to say the purchase of the home wasn’t made, in most instances it was. But the buyers may not have received the best mortgage rate and as we all have learned, something as small as a tenth of an interest rate point can cost thousands of dollar over the course of thirty years.

It is important to understand the role this company plays in financial transactions. They are predictively analyzing every financial transaction you enter into to determine how you will handle this credit, whether you are capable and how your payments will be made. The number they arrive at is based on several models, all based on behaviors. It is a prediction of your behavior with credit. Here’s a breakdown on what they review:

Payment History (35%)

Debt/Amounts Owed (30%)

Age of credit history (15%)

New credit/inquiries (10%)

Mix of accounts/types of credit (10%)

Fixing your score

The first thing you need to do is review each account. If the information is accurate, then you will need to do several simple things. Because payment history makes up the largest portion of your score, making payments on time and paying at least the minimum required payment will improve your score dramatically in a relatively short time (around 12 months). If you continue to stay current, your score will continue to improve for up to 24 months.

The second step is to check each item on your report. Inaccuracies are common and if not addressed, may continue to be an ongoing drag on your score. And while we live in a world where “paperwork” is often avoided, documentation will be needed to move forward with disputes. While you might not relish the idea of saving “paper,” accurate files will help your dispute.

If you have been late on a payment, the third piece of advice might be to explain to them why. Yes, you are throwing yourself on their mercy but they are in the customer service business. They can be accommodating. It can and does happen. But don’t abuse their goodwill.

Some people have collections on their records. The fourth item on your repair list is to make these whole. Move cautiously here. Because FICO concerns itself with recent history, so take the time to discuss with your creditors on how to handle debts in default over 24 months. If they have sold the debts, find a counselor to advise you on how to proceed.

The last thing to consider when trying to fix your credit is debt utilization. This simply takes into account how much money you have available in credit (your credit limits across all cards). The lender looks at the balances on those accounts as well. Using less than 30% of your potential credit limit is considered good (the total of all credit limits less the total of all balances). Morethan 50% is considered to be worrisome.

Once you make the decision to go house hunting, do not open any additional lines of credit. Once you have been approved for a certain amount of money, do not open any additional lines of credit.

Getting the best rate.

In order to secure the best mortgage rate, your credit score needs to be north of 760. It might take some time to reach but once there, you will experience an incredible feeling of financial stability and control – and you will get the advertised rate.

How can we assist you today?

Nola,

On behalf of The Jones Group @ Sunriver Realty

Nola Horton-Jones, Principal Broker/Realtor | ABR, C-RIS, e-PRO, GREEN, RSPS, CCIM Candidate

Bryce Jones, Broker/Realtor | ABR, CRS, e-PRO, GREEN, GRI, RSPS, SFR

Karen Marcy, Broker/Realtor

The Jones Group @ Sunriver Realty | 57057 Beaver Drive | Sunriver, OR 97707

Mobile: 541-420- 3725 | Mobile: 541-420- 4018 | Mobile: 503-327- 9611 | Fax: 541-593- 5123

Email: TheJonesGroup@SunriverRealty.com

Web: Bend-SunriverHomes.com|SunriverRealty.com

Licensed in Oregon