You versus your credit score

There are two major factors that determine your buying power when purchasing a home.

  1. Your assets

  2. Your credit

Assets

The Oxford definition for "asset" is property having value that is available to meet debts, commitments, or legacies.

It's interesting that it focuses not on the ability to grow wealth, but instead on the ability to protect against liabilities. Not the typical way to think about things in a capitalistic society, is it? In an unfortunate situation where you must use your assets to pay for unaccounted for expenses, can you satisfy your debts? This is what banks want to feel comfortable with before they lend you money to buy a home, an asset and perhaps your biggest one at that.

Your assets include cash, savings and checking accounts, retirement funds, stocks and bond you own, your existing home(s), your car, your boat, or anything else of significant value.

Credit

Banks comb through your history pretty good.

  • So you have credit cards. But how do you use those credit cards?

  • Do you carry a balance or pay it off, in full, monthly?

  • How long do you carry outstanding balances?

  • How many credit cards do you have?

  • And what about debts? Do you have college loans?

  • What about personal loans?

  • Did you finance the purchase of your car?

  • How about your couch?

According to credit.com, a FICO credit score is one of “predictive analytics,” which means they take information and analyze it to predict what’s likely to happen.


Lenders have their own analytics that predict future consumer behavior. How likely are you to pay your bills on time (or not). Can you handle a larger credit line. "Good credit" is said to be 700 to 750 with "excellent credit" starting at 750 and above on a scale of 300 to 850. A "fair credit" score is generally 650 to 699.



The average FICO credit score is 706.

Credit scores are not as scary as they used to be. If you even sniffed around finding out what your score might be just 10-12 years ago, your credit score would lower. Now, there are two forms of credit score inquiries.

  1. Soft inquiry

  2. Hard inquiry

Soft inquiries won’t cost you points on your score. There are numerous websites and, now, most banks track your score for you. A bank, however, initiates hard inquiries that do (negatively) impact your score.

Here are some tips on how to manage your credit.

  • Use less than 30% of your available credit each month and ideally less than 10%.

  • Raising your credit limit could help keep your percentage of utilization down.

  • Pay off your balance. Every month.

  • Avoid closing older credit cards before needing your score.

  • Late payments, collections, foreclosures and chapter 13 bankruptcies hurt your credit score for 7 years. A chapter 7 bankruptcy will hurt it for 10 years.

Shopping around for a mortgage getting multiple credit scores can hurt your credit, but when credit scoring companies see different lenders pulling your credit score around the same time, they bundle multiple requests as a single query.

So shop different rates at the exact same time, within 14 days or less.

To track your credit score, look at your score from TransUnion, Experian, and Equifax. You can request them at AnnualCreditReport.com.


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©2019 by RYAN DEMAGISTRIS 

ARLINGTON VA REAL ESTATE AGENT & CONSULTANT