Credit Repair and Credit Scoring
- What exactly does the score mean?
- What contributes to your score?
- How to raise the credit score
- How to re-establish credit after a bankruptcy or foreclosure
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What if I have no credit at all?
Do you know we all have a credit score? Let me clarify that a little. Some of us who have no credit at all still have a score. It is a 999 score, meaning that no credit has been tracked because no credit has been obtained. As soon as you have your first credit card, mortgage, student loan or car loan, you have a credit score. There are three agencies that collect all your credit data. This means that your department stores, visa and master card purchases and car loans and leases are all “reported” on a monthly basis to the three principal reporting agencies, namely, Experian, Transunion, and Equifax. These three agencies provide a “score” and lenders use these scores to determine risk. Before they lend you money, the lender looks at these scores and decides if and how much money you can borrow for your home purchase.
The amount of times you are late with your payments, the amount of outstanding credit you carry and the total amount of credit lines you have all go into a mix that creates your score. Most credit cards have a limit. You may have a $1500.00 limit on your Visa Card. If you are up near the top of the limit, or even one dollar over the limit, your score will suffer. If you do not have at least 3 credit lines, you will have a lower score, if you default on a debt, your score will suffer. So, the three agencies scan all your information and each one will place a score of between 350-850. The higher the better.
Your score can be raised if you follow some simple steps. Pay your bills on time, distribute your purchases over two or three different cards so that you do not approach the top of the credit limits on any one card and always, no matter what, pay your mortgage on time. Since points on your score are reduced each time you are late, the on time payments are important, but none more so than your mortgage. Being late on your mortgage even once in the last 12 months will reduce your score dramatically even if you are not late on anything else! And, some lenders will not grant a mortgage to anyone who is late in the last 12 months, no matter what the reason! This does not mean that you cannot get a mortgage. It just means that you will not get prime rates and terms when you borrow.
There are times that bankruptcies or foreclosures occur. Does this shut you out forever from borrowing? Absolutely not! Some types of loans through alternative lenders are available the day after a bankruptcy or foreclosure. Beware, this type of loan is not priced well, requires a tremendous down payment, and is becoming less available. However, after as little as two years, and with re-established credit, there are programs available for bankruptcy through different lenders. For foreclosure, it may take 3 years or longer with a re-establishment of credit before you can borrow again. And I will tell you that although these are guidelines, there are circumstances that can alter some of the information which is why you must work with a true professional mortgage officer who is both experienced and knowledgeable about the lenders and their programs.
It is quite easy to get new credit after the bankruptcy or foreclosure. We have sources for secured credit cards, that is a card that is backed up by placing some money in escrow and allowing you to charge up to that limit. There are also credit cards that can be unsecured and provide the new and established credit you need. After a bankruptcy or foreclosure, it is smart to re-establish credit immediately whether by secured or unsecured cards. This is because lenders want to see how you handle credit after credit problems. So, since you normally will wait 24 months after a bankruptcy before you secure a mortgage, you will also be able to show a credit rating that is sufficient to obtain a prime interest rate.
Almost worse than having bad credit, is having no credit at all. This is because the lender sees no history of being able to pay things monthly and on a timely basis. You may think it is good to pay cash for everything, but it is actually a detriment when trying to obtain a mortgage. In certain cases, of course, there are mortgages for people with no credit. You must at least show alternative credit, that is telephone bills, rent checks, and any other utility that you can show for 12 months so that the lender is not guessing about your credit worthiness.
If you have any problems or perceived problems with credit, I am ready, willing and able to assist you. I will send to you free of charge, my report entitled Demystifying Credit. All you need to do is to leave me a message with your name, address and phone number.
Call me for a free booklet on credit or to ask me for advice! I am happy to help! 561-578-0666 or e mail your questions to jomathisen@aol.com.
Look for my posts on various subjects. I have authored many different reports on topics from commercial loans to remodeling, investor loans, and all types of residential loans including adjustable and those low, teaser rate loans. I will send you reports on any or all of the topics you see here and I will post some information on lending from A-D credit profiles!
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