As we prepare our buyers for the Spring market, we must remind them of the power of a credit score. It will affect what they pay for a mortgage, insurance and any other credit they use. All consumers are entitled to a free credit report once per year, and January is a good time to obtain one. Your buyers can log on to www.annualcreditreport.com or they can go to one of the credit agencies' sites. The sooner they know their "number", the sooner they can correct any errors and work to improve their scores.
Buyers need to know that "their score" refers to the FICO score developed by the Fair Isaac Corporation. Scores typically range from 300-850. Lenders buy these scores from the three national credit reorting agencies or credit bureaus. They are Experian, Equifax and TranUnion. Each agency has its own way of calculating a person's score, based on information they have gathered about them on accounts opened for six months or more. Experian assigns a score with a range of 330-830. Equifax uses 300-850, and TransUnion has a range of 150-934.
A FICO score of less than 600 indicates that you are a high risk candidate, based on your past late or skipped payments to creditors. Low scores affect your ability to obtain credit, and cost you plenty, as lenders can justify charging high interest rates to high risk clients. A low score also affects how much you pay for insurance and may determine if you will be considered for a job or not.
FICO scores are based on a complex calculation, judged on 5 catergories: Payment History - 35%. Amount of Credit Used - 30%. Length of credit history - 15%. New credit obtained - 10%. Types or mix of credit used - 10%.
The credit report contains a lot of personal information about where you live and work and what your owe. By law, however, a credit score can not consider a person's race, religion, color, national origin, sex, marital status, whether you receive public assistance, or if you exercise your right as a consumer under the federal Equal Credit Opportunity Act or the Fair Credit Reporting Act. Obtaining a copy of your own credit report and score will not lower your credit score if you order the report through the government agency or one of the credit bureaus.
To improve their credit scores, our buyers need to take the following steps: 1) Pay all bills on time, every time. 2) Keep the balances on their credit cards low - some suggest below 30% of the available line of credit. 3) Pay off debt and avoid taking on new debt. 4) Check credit reports regularly (at least annually) to catch inaccuracies.
Pass this information along to your buyers. All information is provided by the Consumer Federation of America and the Fair Issac Corporation.
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