Credit Ratings

Know Your Credit Score

April 5, 2018 By Twila Van Leer

Your credit score is an essential facet of your personal finances. Even so, a great number of people don’t ever know what their credit score is or how to affect it in their favor.

It makes a difference. Your credit score is one of the factors that lenders look at when they consider whether to loan you money for a home or other big-ticket item. A lower score could mean a higher interest rate or otherwise affect the mortgage agreement. Your goal should be to have a score above 760.

So find out what your score is and then apply these five steps to upgrade:

• Know your risks. You can learn what your current credit report contains by contacting one of the three main credit reporting agencies, TransUnion, Equifax and Experian. Once a year they are obligated to provide a free report. It won’t include your overall score and you usually will have to pay a fee to see that bottom line. Usually, the score will come with a list of risk factors. Study them as a starting point for improvement. There can be as many as 300 risk factors. If you choose not to pay one of the reporting agencies for a score, many credit card companies will include it on statements and there are third-party websites that provide a simulated score. They include credit.com and creditkarma. Their scores may not exactly match those of the reporting companies, but it is close enough to set you on a correction course.

• Pay your bills on time and every time. The biggest factor in determining your credit score is how faithfully you pay your bills. Obviously, no potential lender wants to hand its resources to someone who has a patchy record of repaying. Even a few days late matter. A single missed payment can drop your score by 100 to 300 points. Start by refusing to allow yourself to add to your debt. Charge only what you can afford to pay off every month in full.

• Manage the debt you have. Keep your balances low to build your credit score. Debt utilization – how much of your available credit you actually use is an important part of how you score. Your balance should never be more than 30 percent of the credit limit on any single charge card or on the total of all your cards. If your balance now exceeds that goal, plan to get them paid off as soon as possible. Add as much money as possible on each payment. Decide if you want to concentrate on the smallest balances first or whittle away at those with the highest interest.

• If you don’t have a credit card, open one. A wallet full of credit cards isn’t necessary, but one or two, carefully managed, can help you establish a good score. Don’t just apply without a plan. Know how much credit you need and how you plan to repay it. If you opt not to have a credit card, open a credit account and faithfully pay it. You need some evidence that will get back to the credit reporters to enhance your score.

• Be patient. Good credit is not built in a day. It may take a few months of faithfully paying bills, keeping credit lines tidy and controlling your spending to produce the results you are looking for. But it will all be worth it when you face a mortgage lender across the desk or have other credit requests to make.

Buying A Home? Check This List

March 30, 2018 By Twila Van Leer

Buying a home, for many Americans, is like slipping into a foreign country. Myths about mortgages abound. Go into the process as well prepared as you can by considering these facts:

• Perfect credit is required. Not so. Having a higher credit score is helpful and may get you a lower interest rate, but it is not the only factor a lender considers when you come to borrow money for your home. If you can show that you are able to repay a loan you probably can swing the loan if your credit score is above 670.

• Rising interest will prevent your owning a home. Rising interest rates do, as a matter of fact, affect how much of a loan you can qualify for and the kind of loan you might be offered, but it doesn’t mean you are out of the market. CoreLogic projections show that an 0.85 percent increase in interest will cost the buyer another $100 per month. That may seem like a lot, but it is less than the period of all-time high interest rates in the early 1980s, when a fixed 30-year mortgage rate was at 18 percent.

• You need a 20 percent down payment. Conventional home loans may make this requirement, but there are other options. FHA loans require only 3.5 percent down. VA loans may be financed for up to 100 percent of the price. Lending institutions often have provisions for loans with a minimal amount down, say $1,000. The downside of a small down payment is that you may be required to buy private mortgage insurance.

• Prequalification means you have the loan. Going through a prequalification process determines how much mortgage you can afford by computing your income and liabilities, but it is not a binding agreement. The potential lender will look at additional documentation before you are fully approved.

• A 30-year mortgage is best. It’s the most popular option, but not the only one. A 15- or 20-year loan can save a lot in interest payments. An adjustable rate mortgage starts with a fixed rate then is adjusted according to market factors. That means your payment will fluctuate over time.

Don’t compare mortgage options based on their advertised rates, but look at their annual percentage rate, which lenders are required to advertise, along with mortgage interest rates. The APR includes estimated fees and other charges, giving you a more accurate picture of what you can expect.

Equifax Fallout Begins

October 26, 2017 By Twila Van Leer

People who froze their credit to minimize financial damage in the wake of the hack of credit reporter Equifax are now realizing what that means.

The problem is massive. Equifax reported that 143 million Americans had their information, including Social Security numbers and other personal data, exposed in the hack. The company’s CEO resigned in the wake of the credit disaster and Congress is discussing how another such disaster might be avoided.

The aftermath is becoming apparent as people who reacted by freezing their credit try to buy things such as the new iPhone that is in high demand or other big-ticket items.

It is possible to unfreeze your credit if you are anticipating a large purchase and then freezing it again afterward. But that may take time and your credit is vulnerable during the interim.

Experts advise that you let the major credit bureau know several hours or at most several days before you apply for financing. The three bureaus are TransUnion, Experian and Equifax. You will likely be charged $3 to $10 for each action at each of the three bureaus.

Sellers, such as Apple and other wireless carriers, often asked for a credit report before they approve the sale of a new phone. The costs and the hassle of unfreezing and refreezing your credit information may make the acquisition of a new super-phone – or any other costly item – more trouble than it is worth to the consumer.

Citizens Financial Group of Providence, R.I., which runs the Apple financing program, has already announced that it will not new or existing customers who have frozen their credit, at least temporarily. Sprint, Verizon, 4:58 PM-Mobile and AT&T also run credit checks with the three credit agencies. Their policies vary, but it is one of the indications that the Equifax hack will affect the buying practices of many Americans.