Today, most Orange County mortgage lenders and banks place a lot of weight on what type of a loan you can obtain, and what interest rate you will pay, based primarily on your credit rating. Your credit rating is boiled down to a simple number called your FICO score which is a complicated numerical analysis of your credit developed by a company called Fair Isaac & Company (FICO). The higher the number the better, and this score can range from 300 (F minus) to 850 (A++ perfect). Above 800 is considered to be excellent credit, 650 to 750 is fair to good credit, and below 650 is poor credit. The median credit rating nationwide is about 720. There are three major credit reporting agencies that most all lenders use and they are: Trans Union, Equifax and Experian.
In planning a road trip, the first thing in figuring out where you want to be, is to know where you are at. Likewise, the first step to improving your FICO score is to take a close and detailed look at your current credit report(s). You can get a copy of your credit from a lender who may have just run your credit, or obtain one free online at www.AnnualCreditReport.com First of all, make sure the basic information is accurate such as the spelling of your name, work address etc. Also make sure that your financial information is up-to-date. If you paid off a debt in full, make sure that is reflected in your credit report. Credit Bureaus also allow you to add an explanation to your credit report in order to explain what caused the financial misstep. This won't change your FICO score, but it may help a lender make a judgment call in your favor.
About 35% of your credit FICO score is based upon the timeliness of your payments. If you have some late payments that you feel are incorrect or there was some justifiable mitigating circumstances, you can dispute these items with the reporting agency or the lender/debtor who reported them. Sometimes you can get these items removed. This takes patience and diligence but is well worth the effort. There are a few legitimate credit repair agencies (and many scoundrels) that can help you with this process. Just be very careful who you pick to work with you on this.
Approximately 30% of your FICO score is based upon the ratio of your outstanding debt to total available debt. The disciplined and brute force way to improve this is to create a tough and realistic budget of your personal finances. This budget needs to include a sum of money each week allocated to paying down your credit cards and other such consumer debt. Some credit repair agencies also have techniques of re-distributing some of your revolving debt, in order to balance your credit card debt which can make a rapid and small improvement to your FICO score.
Roughly 15% of your credit rating is based simply upon your credit history. The longer you have been borrowing money and paying it back on time, the better. No tricks or gimmicks here, just make sure you always pay on time and don't allow a 60 day late payment to show up in your credit report.
10% is based upon the type of credit you have. Too much consumer finance credit (credit cards) can be a negative. That's why a equity line of credit on ones home (if you own one) which is solely used to pay off credit cards, can improve our credit in two ways. One, it will lower your total monthly debt payments with lower interest rates, and two, this type of debt is considered better then credit card debt.
The final 10% of your FICO score is based upon miscellaneous items, and one of the most common are recent searches of your credit score. This is why you may have heard rumors about being very careful who runs your credit report. This is true. If you have multiple credit checks and no loan was granted (ie; shopping around for a mortgage loan), this could negatively effect your FICO score. So, if you want to shop for a home or car loan, have your credit report checked one time, and then get a copy and give this copy to other lenders you are considering. Tell them not to run your credit report until you have decided who is going to get your loan business.
If you don't have any credit history at all, that's not bad, but it's not good either. It's the old Catch 22... In order to demonstrate that you are credit worthy to borrow money, you have to show that you have successfully borrowed money in the past and paid it off on time. so, you can first apply to gas company credit cards or department store credit cards, which are easy to obtain. Use them for several months and pay them off on time. Then step up to a credit card such as Visa or MasterCard and use them and pay them off on time. Next get an auto loan or other secured installment debt. The final goal is to be able to obtain a great fixed interest rate loan to buy a house or condo, and then you've made it to credit worthy Nirvana.
There is a new web based company at www.BrightScore.com that is the first of it's kind that we know of. For a nominal fee of around $20, you can run your credit report and get a detailed customized analysis on things to do to improve your FICO score. We have never personally tried this service, but have heard good things about it and the cost seems fair enough. There are many more details and tips to consider so be sure to consult with a knowledgeable and trusted financial/credit adviser before you make any decisions regarding your finances.
If you have any questions regarding your FICO score, or if you would like to get a referral to a great credti repair agency, contact us at: 949-388-3396 or email us at: Info@SearchOCHomes.com
