That Credit Score is More Important than Ever

Most buyers are already preapproved when they come to an Open House, but a couple of the people coming through yesterday had questions about how they could qualify for a loan.
FICO is the most widely known type of credit score developed by Fair Isaac Corporation. It is used by many mortgage lenders to determine the possibility that the borrower may default on financial obligations to the mortgage lender.
Last week, Certified Credit Specialist Julie Macc told our Realtor Association members at their Palo Alto District tour meeting, “The FICO credit score predicts the statistical chances of consumers being 90 days late or in default of a loan. The higher your score, the less the odds of having you defaulting on a loan”.
Your credit score is used by lenders in determining whether or not to extend credit to you, the interest rate and terms of the loan. The lower your score, the less likely you will be approved for loans. Even if you are approved, you may have to pay a higher interest rate if your score is not high enough. FICO credit scores range between 300 and 850. Ratings are as follows: Excellent: over 750; Very Good: 720 or more; Acceptable: 660 to 720; Uncertain: 620 to 660; and Risky: less than 620.
Your credit score is determined by the following factors: payment history (35%), revolving debt ratio (30%); length of credit history (15%); new credit and inquiries (10%); and type of credit used (10%).
Macc pointed out that “credit has no history”; a 700 credit score could go down 160 points overnight by one wrong move. Here are some tips she shared on how to improve your credit score:
1. Pay your bills on time.
2. Lower your total debt load.
It’s best to spread your debt among several credit cards than loading a single card close to its limit.
3. Keep old accounts open.
Length of credit history is another important credit score factor, so keep older accounts in good standing open, and use them sparingly, so they remain active and in good standing.
4. Open new accounts with care.
Opening new accounts can hurt you since this could show a pattern of you constantly looking for credit. Don’t open credit accounts you don’t intend to use.
She explained that right now, every point is really precious, especially in this economic climate.