Credit Scoring Quick Answers

Boy…do we get this question a lot. “My credit score is terrible…how can I fix it?” Can I still buy a house? Well first off, no credit score is beyond repair...some are just better than others. And even though the mortgage lenders have tightened up their requirements for lending their money to home buyers, that is not to say that even marginal credit scores can’t get you a mortgage.

The standard in the mortgage lending community or benchmark is called…FICO…which stands for Fair, Isaac and Company which provides the credit scoring model. And they have set a FICO score of 680 as the “stake in the ground” by which all other credit scores are measured. I won’t get into how the score is determined…that’s a whole other subject. But anything at 680 or above is considered “A” credit or “A” paper. This means that a buyer can generally get just about any type of mortgage that they want including 100% financing with really good rates. The higher the FICO score goes, the better the mortgage programs get.

Now, if the FICO score is below 680, all is not lost. Some mortgage lenders still have what is called “A minus” programs for buyers that are just below the magical 680 score but still with other good qualifications. I just worked with a first time buyer that had a FICO score of 677 but was still able to get 100% financing. They had to pay mortgage insurance…which with a 680 score would have been eliminated…but still received a very good mortgage rate with no points.

When a buyers FICO score starts falling well below 680…the traditional sub-prime market which has all but vanished…things get a little more challenging. Fortunately, FHA mortgage programs are still available to help these types of buyers and more of the sub-prime lenders are starting to add these to their product lines not only to help these types of buyers BUT ALSO TO STAY IN BUSINESS. Believe me, lenders will do everything they can to help…it’s mutually beneficial after all.

If you want to improve your credit score, here are some tips that might help…

What does a credit score range from?
300 to 850
What is a good score?
680 and above is considered “A” credit.
What determines the credit score?
35% payment history (late collections, charge-offs, public records)
30% account utilization (balances being carried)
15% length of credit history
10% types of credit (mixture is best)
10% inquiries (only the first 10 count)
Should a person payoff their debt?
The only debt that should be paid during the loan process is unsecured debt (credit cards). Paying collections will decrease the credit score due to the date of last activity become recent. But if you do decide to pay off a collection, MAKE SURE that the creditor gives you a letter of deletion first.
What balance should I carry on my credit card to maximize my credit score?
As close to zero as possible. But if you can’t pay them to zero, make sure that all balances are under 50% of the limit, preferably 30%.
How much do inquiries hurt the score?
Between 2 and 50 points…but only for a year from the date of the inquiry. Only the first ten inquiries are counted and all auto and mortgage inquiries made within a 14 day period are treated as one.
Does the score go down if a person runs their own personal credit report?
NO. You can pull your report as many times as you want personally and it will not affect your score. However, the score that you receive from a credit report you ordered will be higher than the credit score from a lender.
How many credit cards should a person have?
3 to 5 cards is best.

Hope this helps a little in trying to understand this whole issue of credit scoring. Needless to say, there are lots of ways to work within the framework that has been established to get a mortgage…even without perfect credit.