Credit 101… Part One

by | Apr 15, 2018 | Real Estate | 0 comments

Upcoming Free (& non-promotional) Home Buyer Classes:
Tuesday, April 17th, from 5pm-8pm (ish)
Marshall Community Center, conference room
1009 E. McLoughlin Blvd, Vancouver WA (kitty corner from Clark College)

Saturday, April 28th, from 9am-12pm (ish)
Vancouver YMCA
11324 NE 51st Circle, Vancouver WA (corner of SR 503 & 112th Ave/Gher Road)

If these class dates and/or times don’t work for you, please let us know.  We understand that you have lives, and families, and work.  We will work something out that works better with your schedule.  Just let us know….                                                                                  
….we also have home seller classes available too…link on left on website                  
Remember…with reservation…we will throw in lunch, or dinner

Happy Weekend!

….  talking about Client Appreciation…we were talking about Client Appreciation…weren’t we?   We have two coming up.  Avengers: the infinity war will be on Saturday, May 5 from 3pm-6pm.  Yes, we are aware that Disney moved the premier up to the 28th, but they’re Disney so they can do whatever they want.  We, however, are NOT Disney, and we will be at the Clark County PUD Home & Garden show the last weekend of April.  Stop by and see us if you are going.  🙂  Our next Client Appreciation after that will be for The Incredibles: 2 on Saturday, June 16, from 3pm-6pm.  We do have limited tickets to both, and of course, limited 21+ tickets.  Please email either Chris Berg (cberg@pcmloan.com), or myself to reserve tickets….yes, even if you have already stated you want to go.  Due to limited tickets we are going to limit tickets to 6 right now.  If we have open tickets towards to the end (and we usually do), we will open tickets up to those who want more.  Thank you for your continued business, and for your referrals!  We appreciate you….  check out the trailer that is attached!  😀

This week some credit issues came up with some clients, and I have been getting quite a few inquiries from people regarding credit…so….let’s spend a couple of weeks going over credit.  
I know that ‘sometimes’ I can go a bit long (sorry!) so I am trying to keep it shorter for you by breaking this up into 2 parts….   

   Credit Basics…
 
Your credit score is a 3 digit number that lenders and institutions use to predict how you will pay your bills, or debts.  The score ranges from 300-850, and the average US citizen score is in the mid 600’s.  This score is calculated using your credit payment history from those companies that report to a credit agency and go on your report.
 
There are several versions of the credit score, and each entity may look at something different, but most entities in your life will look at your credit score….your insurance company, a prospective employer, your bank, a car lender, a mortgage lender, etc.  The most commonly used version for your credit score is the FICO score (Fair Isaac Company).  Lenders and creditors look at this score to decide if you are a safe risk, or not. 
 
How is it calculated?
 
Some parts of your bill paying history are more important than others, and are given different weights when calculating your score.  Now, please remember that while Fair Isaac owns all the details of the exact information on how a score is calculated, we do know what information is used. 
 
Paying Your Bills ON TIME = 35%
 
Remember that, with banks and creditors, it is all about risk so they are most concerned about whether or not you pay your bills.  The best indicator of this is how you’ve paid your bills in the past.  Late payments and collections will affect your credit score and the more recent the delinquencies, the more they hurt the credit score.  If they are older, and you can show that you haven’t had any recently (at least a year), this is better.
 
How Much Debt You Have = 30%
 
Credit utilization is the amount of debt you have in comparison to your credit limits.  The creditors and lenders use this to see how you manage your debt…..the closer you are to your limits equals the lower your credit score will be.  Lenders and creditors want to see you about 30% or less because it shows 1) you can manage your debt and your income
2) you aren’t using credit to live on
3) in case something does happen you do have some credit to fall back on until you get on your feet.
 
Length of Credit History = 15%
 
How long have you had your loans?  Your credit card(s)?  The longer your credit history goes back, the better your score because you have something that creditors and lenders can track.  It gives them more information on your spending habits, and your potential for risk.  Don’t close a long standing account for a new one with a lower interest rate….it will hurt your credit score more than keeping that old card open.
 
Inquiries = 10%
 
To a creditor/lender, too many applications for credit can mean that you are taking on a lot of debt, or that you could be in some kind of financial trouble….and that you are a ‘high risk’.  Any inquiry made on your credit (yes, even those “would you like to apply for our credit card to receive 25% off of your purchase”), can remain on your credit report for 2 years.  Of course, your credit score calculation only considers applications made within the last year, but creditors and lenders can see everything…. 
Every inquiry is a ‘ding’ on your credit score, but if you are searching for a large loan, such as a car loan, or a home loan, you can make so many inquiries within a specified time and it will only count as one ding.  The credit bureaus do understand that you aren’t trying to buy 3 homes, but shopping around.  You only have a short window for this though…and remember, if a lender sees that you have been shopping for a car loan previous to searching for home loan that this could be a red flag.
 
What Kind of Credit Do You Have? = 10%
 
You need to have a good mix of credit on your account…some long term debt, like a car loan, and some short term debt, like a credit card.  This shows you have experience managing a mix of credit.   Most car, student, and home loans are known as installment debt as these are fixed payments.  Credit cards are revolving debt as the payments are in direct relation to how you have used it.  High debt is an issue in relation to how much income you have….but that is a different blog… 
Having different types of debt is only 10%, so it isn’t a real big deal….unless you have no other information.
 
 No Credit?
 
I understand the dream is to live debt free, and with no credit, but the problem with this is that if you have NO credit then creditors/lenders, etc., have nothing to base your history, and your credit worthiness (aka: risk) on.  Most folks have to get credit, or a loan at some time….whether you want a home, or a car, but without credit this is very difficult.  At this point, your lender may have you open some credit lines for 6 months or more to grow your credit history before they can give you a loan.  It is harder to get a loan with NO credit than it is with BAD credit.  Bad credit can be fixed, but no credit has to be earned.  I know…bizarre, but there you are. 
 
Should you pay off all your debt first…before talking with a lender?
 
Not necessarily. Why?  For example, one of my recent clients had 3 old debts from a divorce, and a bad split up.  He had 2, and she had one.  My clients wanted to pay them off, but the lender told them to wait as they had a mid-score of 630 already which is fine to purchase a home.  Now, at closing, the underwriters made it a condition of the financing to have those 3 bills paid off by bringing in a check at signing for those.  My clients asked why they couldn’t have just paid it off at beginning like they wanted to.  Their lender told them that had they paid those off first it would have been a ‘hit’ on their credit that would have taken them under the 620 needed to buy a home, but by waiting it wasn’t an issue. 

I know, I know…crazy!  There is it though.  Answer is to wait!  Sit down and talk with a lender like Chris Berg at Pinnacle Home Mortgage and talk about your credit report FIRST….before you do anything.  Get a game plan and then go from there educated on your options, choices, and your next steps.  We are, as always…here to help YOU!

Please remember in this crazy market that you do not get T-Bone steaks for the price of hamburger…Look ONLY at homes within your budget.  ALWAYS ask questions, and expect answers without a lot of lingo.  I was always told that if you can’t explain something in a way that the other person can understand clearly, it is because you don’t understand it yourself.  🙂

  I’m always available to answer your questions, so feel free to reach out to me anytime.  🙂

     Information is power, and I hope that I am able to help you.  Good luck, and as always…May the odds be ever in your favor out there….  AND If you are looking for a real estate agent, I would love to be able to help you.                                                                    

As always….this is just a quick overview…. again…and I can’t say this enough…please remember that your agent is NOT a salesperson, and should not be acting like one.  Real Estate is not really about houses, it is about relationships.  Your agent, and your lender work for YOU.  You drive the bus…we are merely GPS to help you get to your goals.  Like the classes, this weekly blog email is to help you with your home adventure.  The goal is to be informative and non-promotional.  🙂  All home buying adventures should START with the Home Buyer Education Classes. Don’t talk to lenders/agents until after the classes so you know the questions to ask, what all the paperwork means, and fully understand the process.  As always…the classes are Free and Non-Promotional.  We are not there to promote ourselves, or any ‘special’ agenda like some classes, and while we certainly hope you will call Chris or I, or both of us, to help with your home buying adventure, that certainly isn’t the main focus of the classes.  If you have any questions about this, or something you have heard… or if you would like me to assist you with your home adventure… please call, email, or text.  We are here to help.   

Thank you again for your business and your referrals!!  …and thank you for referring these classes to your friends, family, and co-workers. 
 
 .   ..disclaimer…if you have already purchased a home, or would no longer like to receive these emails, please let me know and I will be happy to remove you from any further mailings… 
 
 Upcoming Topics: What happens after an offer is made?  and
Water?  What water?  oh… the water under the house…..

Last Week:  Property Taxes… the elephant in the room

Have a great day, and I will talk to you soon,
;-D

Tracie DeMars / Realtor

ReMax Equity Group
License# 81289
Vancouver, WA
360-903-3504

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