Bits and Pieces on Credit
I spent this weekend trying to help people get mortgages. People who don't understand credit or credit scores and who think that $36k is a lot of money. Those are the people who break my heart. They work hard but they don't understand that their hard work alone won't get them the home they are looking for.
Some bits and pieces about credit scoring. First of all, no one really knows the formula that is used to calculate credit. We do know a few things that you can do to increase your score and we know a lot of things you can do to shoot yourself in the foot. Here are a couple general guidelines to follow.
1) pay your bills on time. Every month that you are late puts a derogatory remark on your credit and lowers your score.
2) Don't apply for new credit, manage what you have. (Unless you don't have any and I'll get to that in a second.) You should never charge more than 30% of the credit line that's been extended to you. So if you have a card you plan to use only for airline travel and you expect that from month to month you'll be carrying a $450 balance - that needs to be a card with a $1500 credit limit. If you've just gotten your first credit card and it has a $200 limit your real charging limit is $60.
3) don't have more than 5 open accounts. You can have one or two car payments, one or two credit cards and one revolving account like you might set up to pay for furniture or appliances. No more than that.
4) your debt to income ration needs to be as LOW as possible. Even stretching it out with FHA and other programs that go ooutside the box, you can't have more than 40% of your income INCLUDING YOUR MORTGAGE tied up in debt. So if your annual salary is $36,000, your monthly gross pay is $3,000. Your mortgage, your car payment, your credit card payment, everything you owe cannot add up to more than $1200.
5) don't drive more car than you can afford. And for most of us who want to qualify for a mortgage, that means that we really need to have a car that we paid cash for. What people don't seem to understand is that $400 of car payment a month lowers the amount of mortgage you will qualify for by anywhere from 60-80,000. That can be the difference between the home that you really want and the house in the bad neighborhood.
6) no NEW credit. Don't apply for new credit in the months before you apply for a mortgage loan, even if you are granted the credit, new credit lowers your score. The best thing is if you have something really OLD on your credit history. And there is a way to do this. Parent's if you want to really help your kids qualify for that mortgage, make them an authorized buyer on your oldest credit card. You don't have to give them a card or even keep them on your account. But as an authorized buyer they will inherit your credit history and the older the account the more that can raise their score.
7) when you get ready to apply for a mortgage, ask questions, talk to a couple difference lending brokers and try to get a feel for who is going to have the program that will best meet your needs. Then DON"T let anyone but the one you finally choose run your credit because every inquiry lowers your score a little. That may not seem like a big deal, but for someone on the cusp between good credit and not so good credit, it can be a deal breaker to have you score lowered by 10-30 points because you were shopping around.
I know that most of my readers are already in their home. But you may want to refinance or move to a larger house or just move ... and I hope this information will help you to get into the very best bargaining position you can before you go to apply for your loan.
*hugs*
Terri
I dreaded the blogs that said that there was pain in your life simply because there was so much pain in mine that I couldn't absorb any more. I was a bad friend to have. 
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