It has become and remains a challenging market and sometimes our buyers need more than a lender. Sometimes it is not only a question of removing bad credit; but a question of building new and better credit. This is a good read for everyone (IMHO)
We have KW meetings every Tuesday (doesn’t every franchise!) and this week we had someone from Precision Credit Group speak to us about FICO scoring. I learned a few things that might help a buyer that just needs a bit more to be approved.
Tip #1: Let’s assume you have a credit card with a $3,000 limit. To optimize your credit score, you want that revolving debt to be no more than 30% or a $900 balance. Let’s further assume you pay off your debt every month. Now let’s assume that credit card reports to the credit bureau’s (i.e. Equifax) on the 24th and your statement date is the 25th…let’s also assume you charge $2,500 a month on average.
Still with me?
What just got reported on the 24th is probably $2,500 and that is way more than 30% of your limit, thereby moving your score as much as 50 points DOWN. I’ve always wondered why I didn’t hit that perfect credit score of 850.
Solution: Call you credit card company and ask when they report to the bureau’s…then ask to have your bill date changed to just prior to the reporting date.
Tip #2: You walk into Old Navy and buy a pair of jeans for $30.00 and at the register they ask if you’d like to open a credit card and save 15%. Sure, for $4.50 you think that’s fine. One of the scoring criteria is credit history and each card is weighted the same. And 10 years is the magic number. So you had two credit cards you had forever and now you have three because you just opened the Old Navy card. You just hurt your credit by 20 points or so and that will cost you 1/8 to ¼ of a percentage point on your mortgage interest rate. You can do the math and see that the $4.50 you saved probably cost you thousands over a 30 year mortgage.
Solution: Don’t open new credit unless you really have to and do not close accounts that have been open for more than 10 years.
Tip #3: Your daughter/son is 23 and has a great job and wants to buy a house. Problem is they have no credit. And no credit is almost as bad as bad credit.
Solution: Make your family member an authorized user on your credit card…but be sure you pay your bills so that they are “inheriting” good credit!
Couple other tidbits..getting your credit score on the internet sites runs on a different scale so if your buyer tells you they have a 740…they might really have a 720 and that changes the interest rate.
Did you know that 79% of credit reports have some type of error on them? You can go to annualcreditreport.com and get a free report (you’ll have to pay if you want the score, and based on the tidbit above it isn’t necessarily the right score) and at least review it.
So let’s help our buyers get there by introducing them to great lenders and great credit repair people!
Picture courtesy of Precision Credit Group
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