Real Estate Info & FAQ

There is often a good deal of confusion over exactly what factors play a role in your credit score. It is generally understood that a history of on-time payments factors in heavily. However, most do not know that other factors play a very important role.

The following list is from USAA Magazine (Winter 2006, p 31).

RAISE YOUR SCORE

1. Pay your bills on time – Payment history affects about 35 percent of your score. So do whatever it takes to be timely: Set up automatic payments online, keep stamps on hand, maintain your budget.

2. Keep credit card balances at 30% of your credit limit, or lower – Around 30% of you score is based on how much credit you have access to and how much you are using. If you’re cutting it close to the credit limit on your cards, that will reflect poorly on your score.

3. Don’t cancel credit cards to up your score – About 15% of your score is based on how long you’ve held your credit cards. A card that you’ve had for a few years is better for your score than one you’ve just obtained. Having no credit history at all can readily throw off the score, so do carry a credit card – just pay it off in full.

4. Don’t apply for too many cards - About 10 percent of your score is determined by the number of times lenders request your credit report. Lots of requests might indicate that you are desperate for credit and might be headed into trouble, or are already there.

5. Watch the kinds of credit you use – About 10 percent of your score is based on the types of credit you are using – secured loans such as car loans and mortgages, or unsecured loans such as student loans, credit cards, and so forth. Unsecured loans are considered riskier on you report.

I would take issue with only on point in this list. In number 3, it states that you should use a card, but “just pay it off in full.” It has been my own experience, both personal and professional, that carrying some balance, even $100, is better than nothing because it shows you know how to make a scheduled payment. But, if you are in a situation where this becomes a very big deal, there are larger credit issues that you are facing.

Bottom line – use your credit wisely and pay the bills on time. With that, all other things should work out.

I am not sure what it is like in your part of country, since property taxes are different everywhere, but here in SC, this is the month that lenders do their annual escrow analysis.  It is inevitable that I will receive phone calls this month from my past clients regarding their tax bills.

Here is what happens.  The lenders analyze each loan for which they collect escrow payments (taxes and insurance).  They look to see if they are collecting enough to pay the bills due or if they are colelcting too much.  By the end of the month, clients will start to get letters stating that their total payment is going to either rise or fall, based on this analysis.  In addition, if the tax or insurance payment went up, and there were insuffcient funds to cover the debt, the lender went ahead and paid it, but will expect to be paid back.  This payback be either one lump sum or stretched out over the nest 12 months.

So, if you get a letter from your in January or February stating that your payment is going to increase by $10 or $20 dollars, this is the cause.

Of course, if the payment absoltuly skyrockets, to the tune of $100 per month or more, I would recommend some investigation on your part.  There is typically an assignable cause for this sort of variation.  Maybe your insurance shot up due to a claim, or your property taxes got re-assesed, something like that.

Of course you can email me and I will help as much as I can with any questions.  Email john@bigbearmortgage.com

Have a great day.