Credit and Credit Scores

Credit: Your credit score affects many things you do these days, but is especially important in obtaining a home loan. The higher your credit score, the less your payments will be.

If your score is too low, you won’t qualify at all. If you can’t qualify for a loan, rent for awhile, improve your credit, and try again; credit scores do change over time, and you can improve them.

1. Credit Scores: Before I get a loan, I always get my credit score. That way I can talk about my position, with some knowledge, to the loan officer. The easiest way to do this costs around $15.
   
   When I know my credit is strong, I’ll deal more aggressively with the loan officer on fees, points and rates. When I’m in a weaker position, I’m more accepting of their plan and am just happy to get the money. Knowing my score lets me figure out my bargaining stance.
   
   
2. More on Credit Scores. You actually have 3 credit scores. The credit reporting agencies, Equifax, Experian and TransUnion have different software to calculate your score, but the same
   company, FICO, developed the software for all three. In my experience the three scores will differ somewhat, but not enough to make much difference. Sometimes you’ll hear your credit score referred to as your FICO score; this is how I refer to it.
   
   
3. Improving your credit score: To improve your score, you have to understand where it comes from. FICO says about 1/3 of the score comes from your payment history. So, pay your bills on time.
   
   About another 1/3 of your score comes from how much you owe. If they think it’s too much, they decrease your score; this is one they get me on.
   
   The remaining third of your credit score comes from everything else: length of time you’ve had credit, new credit you’re obtaining, and types of credit you have.
   
   One pitfall that I’ve encountered is rate-shopping credit cards. When I’ve gotten a new card that’s a better deal, it actually ended up lowering my credit score. To get the card, it showed up on my credit report as new credit I was obtaining, with a short length history, and multiple credit checks. These three factors were negative, and lowered my score. Now, I just use the same credit cards and don’t change things around. My credit score came back up after this, but it took time.
   
   Fico(PDF Link) has a pretty good PDF pamphlet on credit scores.

Eugene Real Estate: Article by Craig Tomlinson Local Eugene Oregon Real Estate Agent