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Important factors about credit scoring 


A few days ago an article was provide to us by Sandra Womack.  She shared some very vital tips on factors that can hurt or help your credit scoring.  Before applying the 5 factors to improving your credit score, FIRST get copies of your credit report and SECOND make sure information is correct.  There is 5 factors involved  to your credit scoring: Payment History, Outstanding Credit Balances, Length of Credit History, Type of Credit, and Inquiries. 

Payment History- lending companies pay close attention to the last 24 months of payment history.  24 months of payment history has a 35% impact.  REMEMBER to pay your bills on time.  Paying debt on time and in full has a very positive impact, and late payments, judgments and charge-offs have a very negative impact. Positive impact can start tomorrow, set up a monthly bank draft for your accounts. 

Outstanding Credit Balances- This has a 30% impact.  It is important to have a debt ratio of outstanding balance to available credit.  Try to keep that below 50% is wise and below 30% is even wiser.  Did you know that closing an account is a GREAT idea. The debt ratio will go up and the number of seasoned lines will decrease.  You should pay outstanding debt down as close to zero as possible and evenly redistribute the remaining balance among the open lines.  Hitting the maximums of available credit can be very negative.  Try calling and asking the credit company to increase your available credit to lower the debt ratio, if they can do so without a hard credit inquiry. 

Length of Credit History- This has a 15% impact.  Opening new credit cards will decrease the average length, and therefore hurt this portion of your score.   

Type of Credit-  This has a 10% impact.  Keep in mind, A mixture of auto loans, credit cards and mortgages is positive, rather than a concentration in credit cards only.  Also, you have to be careful when getting credit at a store that is not a department store: the credit agencies frown on cards for more specialized stores where you're likely to only make one purchase, as they seem to show desperation. 

Inquiries-  This has a 10% impact.  Hard inquiries for credit will negatively impact score. The maximum number of inquiries that will reduce the score is 10 and any inquiries beyond that in a six month period will have no further impact on the borrower. EACH HARD INQUIRY CAN COST 2-50 POINTS ON A CREDIT SCORE.  However, Auto and mortgage inquiries receive special treatment and 20 inquiries can be made in a 14 day period for auto or mortgage and will be treated as only 1 inquiry. 

The above tips and other goals to increasing your credit score is available from Sandra Womack, a mortgage professional. 

If you are looking for a new home, whether a first time homebuyer or an experienced homeowner, contact The Freund Team.  The team with experience and passion in finding you a home. 



Information retrieved from Sandra Womack, or 

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Housing Crisis to End in 2012 as Banks Loosen Credit Standards

Capital Economics expects the housing crisis to end this year, according to a report released Tuesday. One of the reasons: loosening credit.

The analytics firm notes the average credit score required to attain a mortgage loan is 700. While this is higher than scores required prior to the crisis, it is constant with requirements one year ago.

Additionally, a Fed Senior Loan Officer Survey found credit requirements in the fourth quarter were consistent with the past three quarters.

However, other market indicators point not just to a stabilization of mortgage lending standards, but also a loosening of credit availability.

Banks are now lending amounts up to 3.5 times borrower earnings. This is up from a low during the crisis of 3.2 times borrower earnings.

Banks are also loosening loan-to-value ratios (LTV), which Capital Economics denotes “the clearest sign yet of an improvement in mortgage credit conditions.”

In contrast to a low of 74 percent reached in mid-2010, banks are now lending at 82 percent LTV.

While credit conditions may have loosened slightly, some potential homebuyers are still struggling with credit requirements. In fact, Capital Economics points out that in November 8 percent of contract cancellations were the result of a potential buyer not qualifying for a loan.

Additionally, Capital Economics says “any improvement in credit conditions won’t be significant enough to generation actual house price gains,” and potential ramifications from the euro-zone pose a threat to future credit availability.

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