Giving Credit Where Credit is Due

 

Why your FICO score makes all the difference.

Editor's Note: The following is an excerpt from a recent AZCentral.com article by Susie Steckner.

You’ve decided to make the leap and start looking for your dream condo or townhouse. Numbers are bouncing around in your head: square-footage, ZIP codes, sale price. But what about a more important number? That would be your FICO credit score. 

Sure, you’d rather focus on the fun stuff. But the smart move is first to understand your FICO score and how it will impact the condo-buying process. Here are five things you need to know if a new condo is on your horizon:

What is a FICO credit score?

A FICO score is a number used to assess a consumer’s credit risk and/or credit worthiness; it is based on a consumer’s credit data history over the past seven to 10 years. Generally, scores range from 350 to 850. From a creditor’s perspective, the higher the score, the less likely the consumer is to default on their credit obligations.

 

How is your score calculated?

Three major credit bureaus compile credit scores. Each uses slightly different models and algorithms to calculate scores, so don’t be surprised if your number varies. To determine your score, credit bureaus focus on payment history, amounts owed on accounts, length of credit history, the different types of credit you have and new credit accounts.

 

What matters most?

Three things pack the biggest punch:

1. Your payment history.
2. The amount you carry on credit cards.
3. The length of your credit history.

Your score is lowered if you are chronically late with payments, max out your credit cards or have a shorter credit history. Keep in mind that scores can be recalculated with changes such as paying off a credit card, so your score can differ month to month.

Buying power.

Your FICO score isn’t the only determining factor related to the terms of your condo loan – but it’s a big one, said Chris Sailus, vice president and Arizona retail division manager at WaFd Bank. The higher your credit score, the better the terms on your loan. This translates into lower interest rates and/or lower fees.

 

Boost your score. 

About a third of your credit score is linked to payment history, so keep accounts current. Lower the balances on credit cards that are max’ed out. Your score will improve when a credit card balance is less than 50 percent of the credit limit and keeps improving as you continue to pay down the balance. You may not want to close a credit card that you have stopped using because that card helps establish a longer credit history, Sailus said. But the account shouldn’t sit dormant, so make regular charges and then make timely payments. At the same time, limit applications for new revolving debt, which can negatively impact your score, he added.

And finally…

Finally consumers should check their credit reports annually. Free copies are available at AnnualCreditReport.com.