Written By Carla Hill
Provided By Realty Times
Healthy credit scores have never been more important. As banks tighten their lending standards, it's important to have your score as high as possible.
A FICO score is a number, in general from 300 to 850, that is formulated from your payment history, including such things as amounts of money owed, length of your credit history, new credit accounts open, and how you have used your credit. Age, salary, race, education, and religion do not affect your score. You can't buy a good score; you can only build one over time by demonstrating that you are a responsible borrower.
To improve your credit score, start with these steps.
1. Pay your bills on time. This seems like a simple enough feat, but in hard economic times, more and more borrowers are finding themselves hard-pressed with the decision of what bill to pay. If you find yourself having a hard time paying bills, be sure to talk with the lender or company you owe. They may have programs or suggestions that will help you avoid having your bill sent to collections.
2. Don't let items go to collections. Once an item is sent to collections, your credit report will suffer. This ding will stay on your report for seven years.
3. Don't open other new credit lines when applying for a home loan. You may want the new car or living room set, but the home buying process is not the time to open multiple new accounts. This is a sure-fire way to temporarily reduce your credit score. If you do this before finalizing your mortgage, you many find yourself stuck with a higher interest rate.
4. Monitor your report on a regular basis for errors and cases of identity theft. Errors do happen. To get them corrected quickly, be sure to contact both the organization that provided the erroneous information, as well as the credit bureau. Identity theft happens. And it is your responsibility to identify it and address it!
5. Pay down credit cards. Carrying high balances on credit cards can severely affect your credit score. Think of it this way. If you have a grand total of $10,000 worth of credit limits available, but you owe $5,000 on all of your cards put together, you are using half of your available credit!
The best loans and mortgages are available to borrowers with FICO scores 700 and above. Experian, one of the major credit reporting agencies, reports that the average credit score is 693.
For a look at your credit report, visit the government sponsored site, myannualcreditreport.com. You may access your report three times a year free of charge.
Would you like information on how your credit score affects purchasing a home? Give us a call at 972-772-7000 or email us at rockwall@kw.com.
Showing posts with label fico. Show all posts
Showing posts with label fico. Show all posts
Monday, August 23, 2010
Wednesday, June 2, 2010
Debt Management for Homeownership
Written By Carla L. Davis
Source Realty Times
Learning to manage your finances is a great first step towards owning the home of your dreams. Whether this is your first time to buy, or you are looking to move-up, managing your debt is important.
Among the most important of the debt management qualities is holding yourself accountable. What does this mean, exactly? Being accountable means taking an honest look at your budget and your spending. The $5 latte every morning on the way to work, the cash withdrawals spent without record, or even the extra martini with dinner adds up to money spent, not saved.
An easy was to increase your own accountability is to use a debit card and online banking for all of your purchases. Online banking is offered by nearly every banking institution, and allows you to access your account anytime, anywhere. Now you'll know if you are spending $100 a month on little extras.
The next step in accountability is to create a monthly budget. On a sheet of paper write down each of your monthly expenses. These might include: rent or house payment, car payments, insurance, phone bills, cable and internet, alimony, child support, and student loans. It's time to take a hard look at what you think you are spending versus what your real expenditures are. If you can, don't forget to add up how much you spend on all the extras, such as nights out, entertainment, books, hair cuts, and household products.
If you'd prefer to use an online calculator to show you a monthly budget, consider using financial guru Suze Orman's tools at Suzeorman.com.
Next, begin to cut and adjust your spending. In this economy, everyone can take note of this tip, even if they don't have debts. Where can you cut? Experts recommend limiting your trips for eating out.
According to Christine Bockelman with Smartmoney.com, "Americans now spend roughly half their food budget dining out, and restaurants expect revenue of more than $537 billion in 2007. That's a 67 percent increase since 1997." How much is the food really marked up? Bockelman notes, "At a fine-dining restaurant, the average cost of food is 38 to 42 percent of the menu price."
Make your morning coffee at home and take it in a travel mug to work. Rent movies, instead of paying $10 a ticket for each member of the family to go see a "new to the theater" attraction. If you have the money to spend and splurge, it's fine. That's what makes our economy go round, but spending what you don't have, and adding to your already mounting debt, is no way to work your way towards homeownership.
There is a difference between wants and needs, and this is a time to re-evaluate how you define them.
Once you have freed up some cash, you can start working on paying down debts and building up savings.
It is recommended you develop a savings schedule. After you've set your monthly budget, you will know how much can be earmarked for savings each paycheck. If you can't trust yourself to make the transfer yourself, then set up automatic deposits out of your account.
A separate savings consideration is an emergency fund. Review your budget and see how much you would truly need each month to get by. Multiply that number by 8, because that is the number of months you should be prepared to survive without a job. If you need $2,500 a month to pay all of your bills, then should have $20,000 in savings. Most Americans don't have a fraction of that, part of the reason for the foreclosure crisis running rampant across the nation.
The latest statistics indicate that most Americans have a personal savings rate of less than 5 percent, but owe $8,000 in credit card debt (MSN Money).
When it comes to credit cards, don't. It's as simple as that. If you can, avoid carrying a balance on credit card. We live in a society of margins, with 43 percent of American living beyond their means, but there is something quite liberating about living on your income and no more. If you must use a credit card to carry a balance, or if you already owe, then consider paying more than the minimum each month. Not only does a minimum payment set you up for possible interest rate and fee increases, it costs a whole lot more in the long run.
Consider this equation. If you owe $10,000 on a card with an 18 percent interest rate (fairly normal), and you make minium payments, according to bankrate.com, it will take you 342 months, that's 28 years, to be rid of your debt. In that time, you will pay $14,423.30 in interest!
On the other hand, at just an extra $25 dollars a month, or a fixed monthly payment of $275, it would take you 53 months, or 4 years, to be rid of your debt. In that time, you will pay $4,563.28 in interest. This is a deal compared to the minimum payment equation.
A common question that credit card users ask, "Should I close the account when I have paid off the card?" The answer is simple. If you owe any money on open cards, then no. This will negatively affect your FICO score. This is because the ratio of credit available to credit used will shrink. If you don't owe any money on any cards, then closing cards should have no impact on your FICO score.
So, take a moment to consider your finances, and see if you really are living within your means. If not, what can you do to adjust your spending and savings to get there?
Are you financially ready to own the home of your dreams? Give us a call at 972-772-7000 or email us at rockwall@kw.com.
Source Realty Times
Learning to manage your finances is a great first step towards owning the home of your dreams. Whether this is your first time to buy, or you are looking to move-up, managing your debt is important.
Among the most important of the debt management qualities is holding yourself accountable. What does this mean, exactly? Being accountable means taking an honest look at your budget and your spending. The $5 latte every morning on the way to work, the cash withdrawals spent without record, or even the extra martini with dinner adds up to money spent, not saved.
An easy was to increase your own accountability is to use a debit card and online banking for all of your purchases. Online banking is offered by nearly every banking institution, and allows you to access your account anytime, anywhere. Now you'll know if you are spending $100 a month on little extras.
The next step in accountability is to create a monthly budget. On a sheet of paper write down each of your monthly expenses. These might include: rent or house payment, car payments, insurance, phone bills, cable and internet, alimony, child support, and student loans. It's time to take a hard look at what you think you are spending versus what your real expenditures are. If you can, don't forget to add up how much you spend on all the extras, such as nights out, entertainment, books, hair cuts, and household products.
If you'd prefer to use an online calculator to show you a monthly budget, consider using financial guru Suze Orman's tools at Suzeorman.com.
Next, begin to cut and adjust your spending. In this economy, everyone can take note of this tip, even if they don't have debts. Where can you cut? Experts recommend limiting your trips for eating out.
According to Christine Bockelman with Smartmoney.com, "Americans now spend roughly half their food budget dining out, and restaurants expect revenue of more than $537 billion in 2007. That's a 67 percent increase since 1997." How much is the food really marked up? Bockelman notes, "At a fine-dining restaurant, the average cost of food is 38 to 42 percent of the menu price."
Make your morning coffee at home and take it in a travel mug to work. Rent movies, instead of paying $10 a ticket for each member of the family to go see a "new to the theater" attraction. If you have the money to spend and splurge, it's fine. That's what makes our economy go round, but spending what you don't have, and adding to your already mounting debt, is no way to work your way towards homeownership.
There is a difference between wants and needs, and this is a time to re-evaluate how you define them.
Once you have freed up some cash, you can start working on paying down debts and building up savings.
It is recommended you develop a savings schedule. After you've set your monthly budget, you will know how much can be earmarked for savings each paycheck. If you can't trust yourself to make the transfer yourself, then set up automatic deposits out of your account.
A separate savings consideration is an emergency fund. Review your budget and see how much you would truly need each month to get by. Multiply that number by 8, because that is the number of months you should be prepared to survive without a job. If you need $2,500 a month to pay all of your bills, then should have $20,000 in savings. Most Americans don't have a fraction of that, part of the reason for the foreclosure crisis running rampant across the nation.
The latest statistics indicate that most Americans have a personal savings rate of less than 5 percent, but owe $8,000 in credit card debt (MSN Money).
When it comes to credit cards, don't. It's as simple as that. If you can, avoid carrying a balance on credit card. We live in a society of margins, with 43 percent of American living beyond their means, but there is something quite liberating about living on your income and no more. If you must use a credit card to carry a balance, or if you already owe, then consider paying more than the minimum each month. Not only does a minimum payment set you up for possible interest rate and fee increases, it costs a whole lot more in the long run.
Consider this equation. If you owe $10,000 on a card with an 18 percent interest rate (fairly normal), and you make minium payments, according to bankrate.com, it will take you 342 months, that's 28 years, to be rid of your debt. In that time, you will pay $14,423.30 in interest!
On the other hand, at just an extra $25 dollars a month, or a fixed monthly payment of $275, it would take you 53 months, or 4 years, to be rid of your debt. In that time, you will pay $4,563.28 in interest. This is a deal compared to the minimum payment equation.
A common question that credit card users ask, "Should I close the account when I have paid off the card?" The answer is simple. If you owe any money on open cards, then no. This will negatively affect your FICO score. This is because the ratio of credit available to credit used will shrink. If you don't owe any money on any cards, then closing cards should have no impact on your FICO score.
So, take a moment to consider your finances, and see if you really are living within your means. If not, what can you do to adjust your spending and savings to get there?
Are you financially ready to own the home of your dreams? Give us a call at 972-772-7000 or email us at rockwall@kw.com.
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