When applying for a Loan, Lender's look at 4 criteria:
Income, Debt, Assets, and Credit Score.
Now, you're probably thinking: I only make $40,000 a year, I'm knee deep in credit card debt (damn you Best Buy) and the only Asset I have is my beat up 1990 Volvo Station Wagon. Don't fret. There are tons of different loan programs out there to fit various financial situations. The most important factor is, yes you guessed it, your CREDIT SCORE.
Components of a Credit Score
Generally speaking, your credit score is based upon the following criteria in order of importance:
· Payment history (this is where delinquencies will hurt you).
· Responsibility regarding credit usage (how maxed out are your accounts).
· Credit age (how long have you had your credit accounts).
· Number of credit inquiry requests.
· Credit diversity.
These quantifiable aspects, once accumulated, typically result in a number between 350 and 850. The bottom line is the higher the number, the more likely you are to pay back the loan and hence, the lower the interest rate the lender will bestow upon you.
Generally speaking, your credit score is based upon the following criteria in order of importance:
· Payment history (this is where delinquencies will hurt you).
· Responsibility regarding credit usage (how maxed out are your accounts).
· Credit age (how long have you had your credit accounts).
· Number of credit inquiry requests.
· Credit diversity.
These quantifiable aspects, once accumulated, typically result in a number between 350 and 850. The bottom line is the higher the number, the more likely you are to pay back the loan and hence, the lower the interest rate the lender will bestow upon you.
A Closer Look at the Players Involved
There are three separate credit bureaus which keep track of your score, Experian®, TransUnion®, and Equifax. If you've heard your score referred to as a "FICO" score it's because all three bureaus use software developed by Fair Isaac Corporation. FICO is an acronym taken from that name. It's important to know most lenders look at all three scores when making a decision on your loan, since scores can and often do vary.
There are three separate credit bureaus which keep track of your score, Experian®, TransUnion®, and Equifax. If you've heard your score referred to as a "FICO" score it's because all three bureaus use software developed by Fair Isaac Corporation. FICO is an acronym taken from that name. It's important to know most lenders look at all three scores when making a decision on your loan, since scores can and often do vary.
Here are some Credit tips to keep in mind:
1. Pay your bills in a timely manner - Paying bills on time for one month can raise your credit score as much as 20 points. Don't be a stoner about this.
2. Control the balances on your credit cards - Maxing out credit cards can lower your score as much as 70 points. So skip the $80 bartab at 4100 Bar on a Tuesday Night and head to the Roost instead.
1. Pay your bills in a timely manner - Paying bills on time for one month can raise your credit score as much as 20 points. Don't be a stoner about this.
2. Control the balances on your credit cards - Maxing out credit cards can lower your score as much as 70 points. So skip the $80 bartab at 4100 Bar on a Tuesday Night and head to the Roost instead.
3. Don't open new lines of credit you don't need - New accounts lower your average account age which, in turn, may lower your score as much as 10 points. Say NO to that American Apparel Credit Card.
4. No credit is bad credit - Having a few (3-5) credit cards which you manage responsibly is a good thing. Having no credit cards will reflect negatively on your credit report. So go to your local bank or credit union, find a Credit Card with ZERO APR for the first 12 months and practice some fiscal responsibility.
4. No credit is bad credit - Having a few (3-5) credit cards which you manage responsibly is a good thing. Having no credit cards will reflect negatively on your credit report. So go to your local bank or credit union, find a Credit Card with ZERO APR for the first 12 months and practice some fiscal responsibility.
5. Don't start closing accounts - Closed accounts still show up on credit reports and can lower your score. If you must, cut up that card, burn it but do not close it out! Unless you consult with a Mortgage Professional (like myself) and he/she tells you to. Then you basically do whatever they tell you. Sit. Jump. Point taken.
Improving Your Score
Now that we've explored the nuts and bolts of credit scoring, let's examine how you can improve your score. If a proactive approach appeals to you, log on to http://www.annualcreditreport.com/ and obtain a free copy of your credit report. You are allowed one free report a year. Read it, get confused, call me @ (323) 823-1246 and let's get that score up to 700. Cheers.
Now that we've explored the nuts and bolts of credit scoring, let's examine how you can improve your score. If a proactive approach appeals to you, log on to http://www.annualcreditreport.com/ and obtain a free copy of your credit report. You are allowed one free report a year. Read it, get confused, call me @ (323) 823-1246 and let's get that score up to 700. Cheers.
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