Improving your Credit

One of the biggest components of qualifying for a new home is CREDIT. Credit scoring has been around since the 1950's, and Credit Bureau Scores-scores based solely on credit bureau data-became widely available in the 1980's. Credit bureau scoring is a statistical means of assessing how likely a borrower is to pay back a loan. The score measures the relative degree of risk a potential borrower represents to the lender or investor. It is not a measure of a borrower's income, assets, or bank account, although those and other factors are still considered by lenders and investors, independent of a score.

Fair, Isaac Credit Bureau Scores (FICO), range from approximately 300 to 850 points, and are available through the three national credit data repositories (Equifax, TransUnion, and Experian). The higher the score the less likely an individual is to default on a loan. Everyone should look at their credit scores approximately once a year to ensure total accuracy. Consumers wishing to dispute items on their credit files with the credit respository can do so through the following numbers: Equifax (800) 685-1111, www.equifax.com; Experian (888) 397-3742, www.experian.com; Trans Union (800) 916-8800, www.transunion.com.

Credit scoring is based on the following:
35% Payment history-how well you pay your bills.
30% Balances-how high your credit card balances are compared to limit.
15% Credit history-age of oldest trade line and the youngest trade line.
10% Type of Credit-too many credit cards or finance company installment debt.
10% Inquires-how many times credit has been checked.

Items stay on your credit file for 7 years. The only exception is a Chapter 7 Bankruptcy which remains on a report for 10 years. Some things a consumer can do to improve the credit rating is as follows:
* Always make payments on time
* Avoid inquiries (i.e.: loan shopping) excessive inquiries will diminish rating.
* Avoid borrowing from so called "HIGH RISK" lending companies (Finance company)
* 90-day/"Same as cash" accounts count the same as open revolving accounts.
* Credit card balances exceeding 35% of available credit.
* Legal actions (i.e.: judgements, collections & bankruptcies) harm credit ratings.
* Do not consolidate debt onto one or two cards and close the rest.

Credit rating can be thought of as a snapshot of an individual's changing credit record. As derogatory data in the credit report gets older, it has less influence on the score. A missed payment from four years ago will not count as much as a missed payment that is six months old.

If an individual thinks they have less than perfect credit they should look to improve their score months before they think they want to purchase a home. There are so many mortgage programs out there now but the better an individual's score the more likely they can get the dream home they have always wanted.

If you have questions pretaining to credit or any type of financing solutions, please don't hestitate to give me a call.

Steven Underwood
Home Mortgage Consultant
Prosperity Mortgage Company
M8646-011
1818 Electric Road
Roanoke, Va 24018
(540) 725-1620 Roanoke Office
(540) 966-6128 Botetourt Office
(866) 799-3295 Faxcom
steven.d.underwood@wellsfargo.com
http://www.homeloans.com/steven-underwood