F) Managing Your Credit

Establishing good credit is essential in today’s consumer environment.

It is most critical when considering the purchase of a home and acquiring a mortgage.

 

5 Key Steps to Managing Your Credit

 

     Make your payments on time!

o    A late payment affects your credit quickly!

     Don’t max out your credit card – try to keep the balance at 50% or less.

o    Its best to have a few cards at a half balance than 1 card maxed out

    This rule is particularly true when you are shopping for a home loan

     Don’t close ANY OLD credit cards!

o    You will loose your “start” date and never get back. The longer you have a card open the better it is for your credit score.

     Do NOT open Store credit cards (i.e. A department store or music store)

o    However, if you already have some open – DO NOT CLOSE THEM EITHER – just keep them active and paid on time!

     Keep your credit open & active. For the cards you do have – use them every 3 months – allow them to send you a statement and then pay if off!

o    It does you no good to use it and then pay it off online when you get home – you need the credit company to report the use to the bureaus and this happens every 30 days (when you get your statement).

     Check your credit report every 3 to 6 months to prevent identity theft.

o    Try http://www.annualcreditreport.com

     Do not pay for your credit score – too many inquires done yourself will bring your score down!

 

Key Steps to Repairing Your Credit

 

Much like managing your credit well – repairing your credit requires the same rules. If you are shopping for a home loan and your score is too low here are some key steps to heal your credit.

     Start making ALL your payments ON TIME no matter what!

o    Your credit score can heal itself every 30 days

     Start to consolidate your debt by paying off the high interest cards first while maintaining monthly   payments on the other cards.

     DO NOT OPEN any new lines of credit at all.

o    When shopping for a home loan you could ruin your credit score and debt to income ratio with too many lines of credit.

           DO NOT use a “credit repair” company – consult an attorney before doing so.

 

The 24-month Rule

Negative information has the most impact on your credit when it is new – the first 24 months. For instance – if you have an old collection you’ve forgotten about – DO NOT PAY IT NOW – pay it in escrow! Why? Because if you pay this old forgotten collection you will bring that information current and…new negative information has the most weight on your score. So if you are planning on getting a mortgage let these negative issues lie until after you close escrow on your new home.

What Is a Credit Score?

Lenders need to know what type of consumer you are. They are concerned with two things:

  1. Your ability to pay back a loan
  2. Your willingness to pay back a loan

To determine if you are “able” to pay back a loan, a lender will look at your debt-to-income ratio.

Meaning they compare how much you make versus how much you owe.

To determine your “willingness” to pay back a loan, lenders will consult your credit score.

FICO scores are between 350 (High Risk) to 850 (Low Risk).

Most lenders want a score over 680; anything less you will be paying higher interest rates that in turn will affect your purchase power – if they even consider giving you a loan.

A FICO score does not concern itself with your income, savings, down payment amount, or demographic.

A FICO score considers past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and the number of inquiries.

Your score considers both positive and negative information. Late payments will lower your score; however, establishing or reestablishing a good track record of making payments on time will raise your score.

What Determines Your FICO Score?

  • 35% is based on your specific payment history
  • 30% is your current level of indebtedness
  • 15% is the time your open credit has been in use
    • 10 year old accounts are great – 6 month old ones aren’t good (Do NOT open new lines)
  • 15% is types of credit you have
    • Installment loans like your car vs. revolving accounts like a credit card
    • Your credit report must contain at least one account older than 6 months and one account that has been used in the last 6 month – in good standing
  • 5% is pursuit of new credit
    • The number of times & companies who have requested your credit score

 

If you are not financially ready to purchase a home, The Caton Team will help you set up a plan to repair your credit – consequently improving your credit score to qualify for a home loan.

 

Got Real Estate Questions?   The Caton Team is here to help.

We strive to be more than just Realtors – we are also your home resource. If you have any real estate questions, concerns, need a referral or some guidance – we are here for you. Contact us at your convenience – we are but a call, text or click away!

The Caton Team believes, in order to be successful in the San Fransisco | Peninsula | Bay Area | Silicon Valley Real Estate Market we have to think and act differently. We do this by positioning our clients in the strongest light, representing them with the utmost integrity, while strategically maneuvering through negotiations and contracts. Together we make dreams come true.

A mother and daughter-in-law team with over 35 years of combined, local Real Estate experience and knowledge – would’t you like The Caton Team to represent you? Let us know how we can be of service. Contact us any time.

Call | Text | Sabrina 650.799.4333 | Susan 650.796.0654

Email |   Info@TheCatonTeam.com

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