Kathy Foran - REALTY EXECUTIVES Boston West



Posted by Kathy Foran on 7/23/2017

If you're planning to purchase a home in the near future, one thing's for sure: You've got your work cut out for you! However, when you finally find the house of your dreams, the time and effort will be more than worth it!

Your to-do list will include calculating how much you can afford to spend on a house, obtaining a pre-qualification letter from a mortgage lender, and eventually comparing loan estimates.

One of the first things home buyers usually need to do before getting too caught up in their real estate search is to check their credit score. Your credit report, which is basically a detailed profile of your credit history, plays a major role in your ability to get approved for a mortgage and obtain favorable interest rates. Consumers are entitled to get a free copy of their credit report once a year from the three major credit reporting companies: Equifax, Experian, and TransUnion.

Before applying for a mortgage, it's highly recommended that you check the accuracy of your credit report. If it contains mistakes, inaccuracies, or obsolete information, that could affect your ability to get a mortgage -- or obtain favorable interest rates and terms. Fortunately, errors can be disputed and corrected by the appropriate credit reporting company.

The Impact of Your Credit Score

The most widely used scoring system to determine a borrower's ability (and willingness) to stay current on loan payments is called a "FICO score." Depending on your credit history and bill paying habits, your FICO score can range from a low of 300 to a high of 850. If you're wondering how your FICO score stacks up against other homebuyers and consumers in the U.S., the median FICO score was recently in the neighborhood of 721 (although that number fluctuates). That means 50% of borrowers are above that score and 50% fall below that mark.

According to the Consumer Financial Protection Bureau, the best mortgage interest rates are generally offered to borrowers who have earned FICO scores in the mid- to high 700s. If your credit score falls between the high 600s and the low 700s, the interest rates available to you may be somewhat higher.

Those who are saddled with a credit rating below the mid 600s may have difficulty getting approved for a mortgage. If you're in that situation, your real estate agent or loan officer may suggest applying for an FHA loan rather that a conventional loan. Although FHA loans can be more expensive, the standards for getting approved are more lenient. These government regulated and insured loans also allow for a more affordable down payment of as little as 3.5 percent, as oppose to the "typical" down payment of between 10 and 15 percent.





Posted by Kathy Foran on 6/12/2016

Credit scores are complicated. There are numerous companies who calculate credit reports. What's more, those companies have different versions of their credit calculators, so any given person can have tens or even hundreds of different credit scores. In this way, credit reports can seem subjective or arbitrary. While that may be true, credit scores can play a role in which credit cards we receive and what loans we get approved for. And now some employers are even running credit checks on their potential new hires. Read on to learn all you need to know about what goes into your credit score.

Who's FICO?

The industry leader when it comes to credit scores is FICO. They set the standard and started releasing credit scores to lenders in 1989. Since then, however, a number of new names have entered the market like VantageScore and CE score.

How is my score calculated?

Your FICO score is broken down accordingly:
  • 35% - Payment history
  • 30% - Amounts owed (debt)
  • 15% - Length of credit history
  • 10% - Types of credit used
  • 10 % - New credit
  1. Payment history The most important aspect of your credit score is repayment history. It includes information on all of your payments (or lack thereof) and whether you were late or on time. It takes into account things like foreclosures, repossessions, and settlements.
  2. Amounts owed (debt) This section is complicated by the fact that having debt isn't necessarily a bad thing for your credit score. It includes your debt-to-limit ratio, the number of accounts with debt owed, and the total amount of debt across all accounts. If you're keeping up with payments and not hitting credit limits, this section can work to your advantage. Owning huge amounts and having poor repayment habits will certainly harm your score.
  3. Length of credit history Being consistent in paying off your debt over a long period of time can be reflected positively on your credit score. Similarly, if you have a very short credit history, lenders are less likely to approve you for what they see as potentially risky loans. This section also includes the amount of time you've had certain accounts and how long it has been since you used those accounts.
  4. Types of credit used If you have proven that you have successfully managed multiple types of credit (retail cards, credit cards, student loans, mortgages, etc.) this will reflect positively on your credit score. A lack of credit diversity won't win you any extra points.
  5. New credit Beware of opening several new cards or taking on multiple loans within a short span of time. It will raise red flags to lenders that you are having financial difficulties and are a risky borrower.

Build good credit habits

Credit scores are daunting and we often overlook them if we aren't in current need of loans. But like maintaining your health, it's important to take preemptive measures to nurture your credit score. Here are some good habits to build that will save you money and stress in the long run:
  • Check your free credit report annually
  • Set up auto-pay on credit cards and loans and keep an eye on your checking account to make sure it has sufficient funds
  • If you are in financial trouble contact your lenders and ask about your options. Going AWOL is the worst thing you can do on your credit debt
  • Keep credit card balances low and avoid opening several cards within a short period of time
  • Take advantage of free online tools like Credit Karma to calculate your debt repayment