• Credit-Scoring-101February 2, 2015

    Improving Your Credit Score is Not a Mystery!

    CREDIT SCORE 101

    If you’re interested in buying a home in the Columbus Ohio area, one of the first steps in the process is to get pre-approved for a mortgage. Immediately, you understand the importance your credit score plays in obtaining a mortgage. Today, many mortgage lenders require a minimum credit score of 640, to obtain an FHA mortgage. Of course, the higher your score, the more loan options you’ll qualify for. Many home buyers wonder how they can improve their credit scores, to qualify for a home mortgage. This article will share the basics of credit scores as well as tips to improve them.

    What is a Credit Score?

    Credit bureau scoring is a statistical means of assessing how likely a borrower is to pay back a loan. Your score is based upon data available on your credit report, which measures the relative degree of risk a potential borrower represents to a lender. To avoid discrimination: gender, race, age, wealth and zip code are not considered.

    Credit Scoring History

    • 1956 -FICO, Fair Isaac Corporation, founded by Mathmatician, Earl Isaac and Engineer, Bill Fair
    • 1958 – FICO created it’s first credit scoring algorithm
    • 1980’s – FICO scores widely available
    • 1995 – Fannie Mae and Freddie Mac recommend using FICO scores to evaluate mortgage loans
    • Today, used extensively by many industries, including mortgage lenders

    3 Credit Bureaus

    There are 3 credit bureaus (Equifax, Experian and TransUnion), each using a different algorithm to report credit scores, therefore scores can be different. Credit reports are usually good for 90 days, although, most lenders won’t accept another lenders report. Mortgage lenders pull your credit report from all three bureaus, for a loan approval.

    Permission Required!

    NOTE – Creditors must have permission to pull your credit report and your social security number is necessary.

    Equifax – Beacon 5.0

    • Predicts a borrowers potential for going delinquent in the next 180 days
    • De-duplication window is 45 days
    • Based in Atlanta, Georgia
    • Publicly held – traded on New York Stock Exchange
    • Founded in 1899, Equifax is the oldest of the three agencies

    Experian – Fair Isaac V.2

    • Predicts a borrowers potential for going delinquent in the next 90 days
    • 24 month performance period
    • De-duplication window is 14 days
    • Based in Dublin, Ireland
    • Publicly held – listed on London Stock Exchange
    • Bank stockholders: Chase, Bank of America, Wells Fargo

    TransUnion – Classic ’04

    • Calculates risk of client going 90+ days delinquent within the next 2 years
    • Minimum criteria – 1 trade opened/updated within last 6 months
    • De-duplication window is 45 days
    • Based in Chicago, Illinois
    • Privately owned

    Credit Report Inquiries Can Lower Scores

    Often, Columbus home buyers shop around to get the best deal on a mortgage, not realizing each time a mortgage company pulls their credit, it’s counted as an “inquiry” on their credit report. When applying for credit, you authorize lenders to ask or “inquire” for a copy of your credit report from a credit bureau. Looking for new credit can equate to higher risk, possibly lowering your credit scores.

    De-duplication Protects Credit Scores!

    De-duplication Protects Credit Scores

    When shopping for a mortgage or even an auto loan, it’s best to do so during the “DE-DUPLICATION WINDOW.” The inquiry de-duplication window ranges from 14-45 days. During that time period, multiple inquiries for a mortgage or auto loan are treated as a single inquiry and should have little impact on your credit scores. After the de-duplication window, you can lose a minimum of 2-5 points for each inquiry.

    How Are Credit Scores Formed?

    Credit reporting is a voluntary system where creditors and collection agencies have to pay to report. Both negative and positive reports affect your score.

    Credit Scoring Basics

    • You must have credit open to have a score
    • FHA, Fannie Mae and Freddie Mac require credit scores to get a mortgage
    • If you have no score, a portfolio loan may be an option. Petra can refer you to a lender.
    • Cell phone, utility bills and rentals don’t affect your score, unless they are reported. They usually don’t report unless you’re late because it costs them to report.

    Negative Reports

    • Reported after a trade line has gone delinquent
    • Common for smaller collections like (utility, medical and cell phone bills)
    • Smaller collections usually report to one credit bureau
    • Larger collections usually report to all 3 credit bureaus

    Positive Reports

    • Shows full history, including monthly payment record
    • Common for larger dollar items (mortgage, auto, credit cards, student loans)
    • Larger debts usually reports to all 3 bureaus

    How are credit scores are calculated?

    Mortgage FICO Scoring Model

    Payment History = 35% of score

    • Pay on time – One 30 day late can drop score 150 points for up to 2 years!
    • Student loans can’t be late in the last 12 months
    • The newer the negative credit (late pay, bankruptcy, foreclosure) the more impact on your credit score

    Amounts Owed = 30% of score

    Credit card companies often report your balance about 1 week before your bill is due, so your balance looks higher, even if you pay it off in full each month. Credit card balance to maximum limit ratio is key.

    • Best to stay under 30% of your maximum limit because you can lose points as you max out:
      • 0-30% = loss of up to 10 points
      • 30-50% = loss of up to 25 points
      • 50-90% = loss of up to 90 points
      • 90-100% = loss of up to 100 points
      • Over credit limit – additional penalty
    • More cards with lower debt is better than 1 maxed out card
    • 3-5 Credit cards is good. More than 5 isn’t necessary.
    • Pay off the smallest card 1st to improve score
    • Don’t max out credit cards – ratio of limit affects score

    Length of History = 15%

    • FICO factors an average length of history on open accounts
    • Don’t close oldest credit card – history of payment helps your score
    • 25 years is maximum length of history
    • Bankruptcy can stay on credit report up to 10 years
    • Foreclosure can stay on credit report up to 7 years
    • BANKRUPTCY – you may qualify for a mortgage after 2 years if your home was not included in bankruptcy

    Types of Credit = 10%

    • 5 types of credit on report: installment, revolving, auto, mortgage, open/other
    • Good balance = 1 of each type of credit
    • Home equity line is reported as revolving credit.
    • Not all lenders report an equity line unless you have a balance
    • Can be penalized for having too many lines of credit

    New Credit = 10%

    • The number of new accounts can affect credit score for about 6 months
    • New credit inquiries can drop score 2-5 points each
    • Don’t obtain any new credit during the home buying process – your score can drop and lenders usually recheck credit report just before closing
    • “TRAP CARDS” – NO INTEREST – NO PAYMENTS FOR 12 MONTHS – can drop your score because people tend to max out the account for large ticket items (furniture, jewelry, kitchen, etc).

    QUICK SCORE BOOST

    QUICK SCORE BOOST: – OptOutPreScreen.com – Opting out of new credit offers can immediately improve your credit score 3-5 points because you’re considered less of a risk since you will no longer receive new credit offers.

    Beware of Collectors

    Collection agencies typically buy debt for pennies on the dollar . . . which means you can negotiate to pay less than is owed. Hospitals can’t collect debt on medical bills, so they sell debts to collection agencies.

    LETTER OF DELETION: When you pay a collection agency, make sure they first provide a written letter of deletion, which means they will remove the collection from your credit report – like it was never there. NEVER TRUST A VERBAL COMMUNICATION – IT MUST BE IN WRITING! The first person you talk to probably won’t have the authority to agree to this, so you may have to talk to a 2nd level supervisor or higher.

    CAUTION!!!!

    CAUTION: Many collection agencies don’t report paid off collections to your credit report. It may be best to pay the original company you owed, instead of paying the collection agency. The original company may have to buy the debt back from the collection agency.

    Student Loan Debt Trap!

    Often students don’t realize, the minimum required payment on student loans usually only touches interest. You should pay more than the minimum to pay off the principle. If you only make the minimum payment, you’ll never get it paid off and interest will keep compounding.

    DIVORCED? Refinance that mortgage!

    In divorce situations, one spouse often gets to keep the house. If that spouse doesn’t refinance the mortgage, the other spouse who no longer lives in the home, can still be held responsible for the mortgage. I’ve seen this happen too often.

    FREE Credit Reports Can Be Misleading

    Credit scores from those FREE online credit reports like, Credit Karma, are usually not close to a mortgage credit report.

    • Scores are typically inflated between 40-80 points.
    • Not regulated
    • Market studies show people will pay more for additional products with higher scores
    • All credit bureaus and FICO offer online scores – but none are the same as mortgage industry
    • Online reports requested by consumer, shouldn’t count as an inquiry

    If you’re ready to buy a home  ~ CONTACT Petra at 614-746-2115. We can refer you to a reputable Columbus mortgage lender to help you evaluate your credit and get a FREE loan pre-approval.

    DISCLAIMER: As a Columbus Ohio REALTOR, I strive to stay abreast of the latest mortgage news to better serve my clients. I recently attended a seminar, where I learned the credit scoring tips I’ve shared above. The information is meant to be helpful, however, since I am not a credit expert or lawyer, it is not intended to be any sort of legal advice, nor do I guarantee any results.

    This information was taught by Alex of Continental Credit, LLC. They can be reached at 303-495-3460 for professional credit counseling assistance, to help improve your credit scores.

  • Westerville Parks Wins National Gold Medal AwardNovember 12, 2013

    Westerville Parks & Recreation Wins National Gold Medal Again

    Posted Date: 11/12/2013

    Those living in Westerville know how wonderful the City of Westerville Parks & Recreation Department services are. Westerville has won many awards for it’s outstanding parks and recreation programs, the latest being the National Gold Medal Award at the 2013 National Recreation & Parks Association (NRPA) Congress in Houston, Texas. Westerville has won the Gold Medal award four-times (1974, 2001, 2007, 2013), and is the first city to win the award three times consecutively since 1996.

    The Gold Medal Award honors communities, throughout the United States, that demonstrate excellence in long-range planning, resource management and agency recognition. Each agency is judged on its ability to address the needs of those it serves through the collective energies of citizens, staff and elected officials.

    Westerville Ohio Community Center - Courtesy of ColumbusCastles.com

    Westerville Community Center – Courtesy of ColumbusCastles.com

    As a Westerville REALTOR® and resident for over 12 years, I can personally vouch for the outstanding recreational programs, parks and facilities in Westerville; they are the best in Central Ohio. Having lived and sold homes all over Central Ohio, I can say there is no other community that offers as much as Westerville does for the price.

    Westerville prides itself on being a “city within a park” with almost 600 acres of park lands in 46 locations, 12,000 street trees, 26 miles of paths and bike trails, the Highlands Aquatic Center, and a modern 96,600 square foot Community Center.

    The Westerville Parks and Recreation Department offers more than 1,900 programs annually for citizens of all ages and abilities. Westerville’s Parks and Recreations programs are professionally designed and there’s something for everyone including: pre-school, parent/child, youth, teen/adult and senior adult programs; athletics; the arts; aquatics; special events; day camps; sports leagues ; leisure classes; entertainment; wellness programs and more!

    Check out a few videos I have taken, highlighting Westerville’s Parks and Recreational facilities:

    Westerville Community Center Indoor Pool Video

    Westerville Highlands Aquatic Center Swimming Pool Complex Overview Video

    Westerville Highlands Aquatic Center Swimming Pool Lazy River Video

    If you are interested in living in Westerville, learn more about the Westerville real estate market and community at: Columbuscastles.com/westerville-ohio-real-estate

    As an experienced Westerville REALTOR®, I’d love the opportunity to serve your Westerville real estate needs! If you are interested in buying or selling a home in Westerville, CONTACT PETRA at 614-746-2115!