This home buying tip explains the importance of good credit and what you can do to improve your credit score.

When you apply for a mortgage loan, your credit will inevitably come under scrutiny. Mortgage lenders will review your credit closely to determining your credit “risk category.”

If your credit score is high and your risk is low, you have a good chance of being approved for a loan. If the opposite is true (low credit score and high risk factor), then you’ll likely have trouble obtaining a loan.

How to Maintain Good Credit
When it comes to credit, an ounce of prevention is truly worth a pound of cure. In other words, you should focus on maintaining good credit at all times. That way, when you’re ready to apply for a mortgage loan, you won’t have any unpleasant surprises.

Being labeled “sub prime” or “bad credit” by a mortgage lender can make the home buying process more difficult. So you should do everything possible to keep your credit score high.

There are no quick fixes with credit, only long-term strategies and good practices. Here are some things you can do to improve your credit score:

1. Pay all your bills on time. This means all your bills — credit card, auto loans, etc. Paying bills on time will raise your credit card. Having a history of late payments will lower your score and cause you problems.

2. Keep credit card balances low. Don’t let your credit balances get away from you. This will increase your overall debt, which will in turn elevate your debt-to-income ratio.

3. Keep your debt-to-income ratio at 20% or lower. Your debt should not total more than 20% of your net monthly income. If it does, focus on paying down the debt as quickly as possible.

4. Always pay at least the minimum amount. If you can afford to pay more than the minimum amount due on credit balances, by all means do so. It will reduce your balance quicker and give you a more favorable debt-to-income ratio. But make sure you pay at least the minimum amount. Paying less than the minimum will generally lower your credit score.

5. Limit the number of loans / accounts you apply for. If you apply for credit too often, it could raise a red flag that you can’t manage your finances. Use credit and loans sparingly … only when you need them.

Sure you want to improve your credit score. But don’t focus solely on the short-term. Focus on maintaining a good credit score through the practices outlined above. This home buying tip will pay great dividends when it comes time to apply for a mortgage loan.

* Copyright 2006, Brandon Cornett. You may republish this article if you keep the byline and author’s note, and also leave the hyperlinks active.

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Tags: buying a home, credit score, home buying, home loan, Mortgage, real estatebuying a home, credit score, home buying, home loan, Mortgage, real estate

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If you want to borrow money from a lender, you’ll quickly learn how important your credit score is. Lending institutions will almost certainly take a look at it, and may well approve or decline your loan based on what they find. A bad credit score can also mean you’ll only be offered loans with interest rates significantly higher than standard rates.

Basically, a credit score is a number calculated by analysing the details of your credit history. Whenever you do anything that involves credit, it’s recorded. The lender takes all of your credit history, enters it into a computer, and the computer then calculates your credit score. Various credit-ranking agencies use different software, so it’s quite possible that you’ll get a different credit score with each one. However they’ll all still fall within a similar range.

Sometimes, credit scores go by the name of FICO scores. Fair Isaac Corporation (FICO) developed the software most commonly used to determine credit scores, and that’s where the name comes from.

Your credit score is compiled from a number of different parts of your credit history, and each one contributes to a different degree. Each factor is assigned a different percentage in the calculation of your credit score. Some of these factors include amounts owed, payment history, and the types of credit you currently have. So let’s take a look at the various factors in more depth, and what percentage of your credit score they will generally represent.

Payment History

Payment history includes your history of amounts paid and when, and particularly late payments. Obviously lenders like to see no late payments, as someone with a history of late payments is going to be a much bigger risk for them. Payment history accounts for 35% of your credit score.

Amounts Owing

30% of your score is based on any loans or outstanding debt that you currently have. The lender will look to see how many accounts you owe money to, and the total balance of all your amounts owing. They’re also keen to see that you don’t have access to much more debt, in terms of lines of credit or credit cards, in case you have the opportunity to overextend yourself.

Length of History

Obviously, if you have a good credit history stretching back for a number of years, that’s going to work in your favour. Lenders will look to see how long various accounts have been open, and whether there’s been any activity in those accounts. History accounts for 15% of your credit score.

Types of Credit

10% of your FICO score is allocated to analysis of the number and types of accounts you have. Lenders tend to prefer diversity, so they’d rather see a variety of account types, not just credit card accounts.

New Credit

Another 10% of your credit score is based on recent activity in your credit history. Lenders get nervous when they see a lot of recent history, particularly if the credit that was applied for has been knocked back. This tends to send warning signals that you’re in trouble, or may have the opportunity of overextending yourself. Never apply for a loan with more than one lender at a time - a batch of 10 applications all hitting your credit report around the same time will make it almost impossible for you to get an approval.

Now that you understand the factors that make up your credit score, you might be wondering what sort of number is considered a good credit score. Mostly, credit scores fall between 350 and 850. The higher your score is, the better your credit. Lenders like to see high scores, because that suggests that you’re a low risk borrower. A lender will feel comfortable that they’re a lot more likely to get their money back from someone with a high FICO score, because these people have a good, solid history of paying their debts on time and generally demonstrating good money management skills. So a high credit score means you’re low risk, and have a much great chance of your loan application being approved.

But if your credit score isn’t that high, what can you do to improve it? It doesn’t happen overnight, that’s for sure, but the sooner you start practising good money management skills, the sooner you will see your credit score rise. Always pay bills on time, and as far as possible keep your credit card balances low. Don’t open lots of new accounts in a short space of time just before applying for credit.

It’s also worth checking the information on your credit history to make sure it’s accurate and up to date. If you find anything that’s incorrect, apply to have it altered or removed. Even a few small changes may be enough to get you over the line with your next loan application.

None of this is rocket science - obviously lenders want to limit their risk, and your credit score says a lot about you and your money management skills. Remember, it’s not just a question of how much debt you currently have - lenders are looking for longer-term history showing up to date payments and generally good financial management.

So even if you don’t have plans to apply for credit in the immediate future, make the effort to keep your credit history as good as you can, because it will pay off in the future.

Find lots of other useful credit score information at Home Loan Zone Central and Bad Credit Solutions Zone

Tags: credit score, fico score, home loan, home mortgage, loan application, Mortgage, owning homecredit score, fico score, home loan, home mortgage, loan application, Mortgage, owning home

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It is important to build credit in American society starting at a very young age. The reason that it is increasingly important to build credit is because of the standard developmental stages American adolescents and young adults go through. After leaving home, a majority of American children go on to college. In order to be able to afford the expensive items (like textbooks) and the fun activities (like Spring break trips), it is sometimes necessary to rely on credit. If you build credit early, it will be there to access during your starving college years, when you may need it most. After college almost always comes a car, a family and a house, all of which bring their own financial obligations and each of which requires that you increasingly build credit which reflects your stages of growth.

Build credit starting with your first car

The first car that most teenagers have is usually paid for by a parent or bought with cash earned from a part time job. Because of this, it may seem impossible to build credit using your first car, but this isn’t true. One of the easiest credit cards to obtain is the gas card. By putting all of your first car’s gas onto a gas card and paying the card off every month, you can build credit before you’ve even grown up and moved out of the house. In today’s society, it is often also common for the first car to come with a first cell phone, so that parents can keep track of mobile teens. Ask your parents to include your name on the cell phone contract in order to build credit faster.

Build credit by shopping

Most teens like to shop and this can be a good thing if done properly. Department store cards are relatively easy to obtain, especially with a parent co-signing. They have low credit limits which makes them good for people who are just learning how to use credit cards. You can build credit by using a department store credit card in the same manner as the gas card.

Build credit throughout your lifetime

As you prove that you can pay off your gas or department store card, you will build credit. As you build credit, you can begin to apply for other credit cards and private loans. As your credit line increases, you build credit. What you want to remember is that you are going to build credit throughout your entire lifetime. This means that you want to build credit history which is positive and reflects your credibility as a borrower. If you build credit that increases in strength over time, you will be able to meet the increasing financial demands that come with new developmental stages.

Basic steps to build credit you want to have

You want to build credit which reflects your credibility as a borrower. In order to build credit of this kind, you will want to follow a few simple rules. The first is to make sure that you pay off the balance of each credit card in full at the end of each month. If you are not going to be able to do this, you should think about whether or not the purchase is important. If indeed it is (semester textbooks, for example), then you should pay the balance off as quickly as possible. Other keys to build credit are to always make payment early or on time, to make sure to always stay within your given credit limit, and to avoid applying for numerous credit cards. Regular monitoring of your credit report is also important because, once you build credit, you don’t want it destroyed by computer errors or, worse yet, identity theft.

Martin Lukac, represents http://www.RateEmpire.com, a finance web-company specializing in real estate/mortgage market. We specialize in daily updates, rate predictions, mortgage rates and more. Find low home loan mortgage interest rates from hundreds of mortgage companies! Visit http://www.RateEmpire.com today.

Tags: bad credit, car loan, credit report, credit score, good credit, home loanbad credit, car loan, credit report, credit score, good credit, home loan

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