Credit Scores were first developed over fifty years ago when Fair Isaacs Corp Developed the first credit scoring system. Today, the Fair Isaacs Corp Credit Score, which is called a FICO score, is the industry standard and used by lenders to evaluate whether to offer an individual a line of credit or a new home mortgage.
Credit scores are based upon information in a persons credit report and based on a numerical scale between 300 and 850. 850 is considered a perfect credit score, but anything above 760 is considered a very solid credit rating. While the amount of debt a person has plays an important role in determining their credit score, this typically only makes up about 30% of the credit score. The rest of the credit score is based off of the way an individual has paid off their debts, as well as the number of delinquent payments, the length of the credit history, and the types of loans offered.
Since a big part of a credit score is not how much debt you have, but how well you manage this debt, it is possible to maintain a healthy credit score even with a high level of debt. However, most loan administrators suggest maintaining a 30% to 50% debt to credit limit ratio.
One of the most important things that you can do to maintain a healthy credit score is to pay all bills off on time. Today, most banks offer free electronic payments, which can be a quick and easy way to ensure that all bills get paid on time. If a payment is missed, it should be paid off as quickly as possible.
Another important step in maintaining a healthy credit score is to pay off the debts that have the highest interest first, without a great deal of debt transfers. Many people, especially those who are having credit problems, also like to apply for any semi-attractive credit card offer they get, but too many credit inquires reduces your credit score, so this should be avoided. Instead, it is suggested to only apply for new credit once a year and to research potential credit offers before actually applying. Once a good credit offer is found, the credit inquire process should be completed in as short of a time frame as possible.
One big factor that goes into a credit score is the length of a persons credit history, so it is not usually advised to cancel a credit line, even if there is no credit balance. Instead, you can simply cut up the credit card, but leave the account open. This helps provide a longer credit history, even if you are not using it.
Using a debit card instead of a credit card can also be a good idea. These can be used in the same way a credit card would be and are accepted at all major retailers, but do not draw money from a credit line, but instead directly from a persons checking account. Some people even find that when they use cash, they are less likely to spend money, so it may be a good idea to do a little experimenting to get in the habit of efficiently managing money.
While credit reports and credit scores are arguably a very controversial device, if you wish to borrow money, having a high credit score is essential.
One of the most important parts of buying a home is obtaining a mortgage. Since most people do not have the money to buy a home outright, they must instead rely upon a lender to loan them the money to purchase the home. As a result, once the mortgage is obtained, the rest is often downhill, although waiting for your offer on a home to be accepted can be very nerve racking. Since a mortgage represents such a long term commitment and investment, which for many is the biggest investment of their life, it is not a decision that should be taken lightly. Instead, it is important to spend some time shopping around and find the best deal.
Typically, one of the first decisions is whether to go to a mortgage broker or a mortgage banker to get your home loan. A mortgage broker is sort of like a middleman, who acts as a go between for banks and people looking for a mortgage. Mortgage bankers, on the other hand, represent actual banks that offer mortgages. Both mortgage brokers and mortgage bankers have disadvantages and advantages, which vary depending on your situation.
Even just twenty years ago, the mortgage industry was dominated by banks. When it came time to get a mortgage, most people went to the bank where they had their checking account and asked for a loan. This slowly changed as other companies and investors began looking at the high returns offered by the mortgage industry and decided to enter into the business of backing home loans.
One of the main advantages of having your bank finance your mortgage is that they will often take not only your credit rating into account, but also your personal history with the bank. This is especially true of credit unions, which sometimes have a much more personal loan approval process. Mortgages offered by banks are also more likely to be less risky and offer a very competitive rate. They are also typically able to move much more quickly than other lenders to approve or deny a loan. In addition, the fees associated with a mortgage from a bank are often lower, as they will hold the loan for its length, making their money this way.
However, while many banks will take into account your history with them, they also tend to have higher standards, especially in todays market. Gone are the days where mortgage lenders rely primarily on personal feelings, with most instead having a set mathematical formula that the borrower must meet. This means that often, a bank will only offer a mortgage to those with a very high credit score. Since the bank makes a great deal of money from other investments, they can afford to be much more picky.
It is a good idea to spend some time building up your reputation with your bank, such as by taking out a small line of credit and keeping it well maintained.
Mortgage brokers, on the other hand, typically have several mortgage lenders they work with. This could be an actual brick and mortar bank, but is often simply a group of investors that buys and bundles mortgages and then sells them to other investors.
As a result, the person that initially funds the mortgage is not the same person that holds it in a years time. This can cause some problems, as has been seen in the latest housing market crisis, where the initial lender lacks the incentive to ensure the person has good credit, because they know they will only hold the mortgage for a few months. This can be a bad thing, but it also means that those with lower credit, often have a much better chance of getting a loan from a mortgage lender. Of course, as a consequence of the current housing market, most lenders have become much more strict in their lending.
Since a mortgage broker is simply a middleman, they often have access to multiple lenders and can often offer much more competitive rates and has more options. However, a mortgage broker gets paid by commission and gets a fee based off the total loan amount. This fee is many times greater than that of a bank and also, since they are personally motivated by commission, mortgage brokers do not always have your best interests at heart.
As with any financial decision, it is a good idea to explore all of your options. Many people start with their bank, as this banks can usually move very fast and have a personal relationship, which can often mean a greater chance of approval. By starting with your bank, you can also get a feel of current interest rates, so when you contact a mortgage broker, you have a way to measure what type of deal they are offering you.
Late last Thursday night, announcements that the Cash for Clunkers program had run out of money sent car dealers scrambling to submit their applications. The following day, Friday, the House of Representatives approved a bill that would allocate an extra $2 Billion to keep the Cash for Clunker program going.
The bill, which draws the extra funds from a U.S. Department of Energy program, still needs to be approved by the Senate, which is expected to vote on it this week.
With its additional $2 Billion budget, the Cash for Program would be slated to continue until its November deadline or the funds run out again.
The Cash for Clunkers program originally set aside $1 Billion to provide an incentive for Americans to purchase a new car. The program allots up to $4,500 to people who trade in an old car for a new one with improved gas millage. Dealers all over the country quickly signed up for the program and by the end of July had expended the $1 Billion Cash for Clunkers Budget.
There has not been an official tally yet, but it is estimated that around 250,000 applications have been submitted to the Cash for Clunkers program, with each of these applications representing the purchase of one new vehicle.
Pundits on both sides of the aisle have been quick to draw conclusions from the Cash for Clunkers expended budget. Some claiming that it is evidence that the government could not handle a healthcare program. However, this conclusion is based more off of a need to find faults with nationalized healthcare, than with an actual correlation between healthcare and the Cash for Clunkers Program.
The purpose of the Cash for Clunkers program was to get Americans spending again, purchasing new cars from struggling auto dealers and that is exactly what the program has done. This economic stimulus program preformed just as expected and in fact exceeded most expectations, generating quite literally hundreds of thousands of new car sales at a time when the auto industry needed it most. A budget was created that had a time limit on it and the budget was simply expended before the time limit was up.
While there are a great number of conclusions that could be drawn by the expenditure of the Cash for Clunkers Budget, not all of them positive, to assert that it is an indication that the government can not run a healthcare program is disingenuous at best and an outright lie at worst.
The process of applying for a mortgage, finding a home, and closing the deal can be a very stressful time, which is filled with a great deal of paperwork. Often, the process begins with you providing the lender an outline of your available funds and your salary. They will initially use these numbers to get an idea of how much of mortgage to offer you and the value of this mortgage. While initially they may only require your word, the mortgage lender will ultimately require proof of your employment and a number of other financial details, so it is a good idea to prepare as much of this information ahead of time as possible.
One of the most tedious parts of purchasing a new home is doing all the paperwork, but by spending some time getting your financial records in order before visiting a mortgage lender, you can greatly simplify the process of getting a mortgage and greatly reduce your stress.
Below, you will find some of the information that is usually required by a bank or other mortgage lender in order to approve your loan.
By having the above information ready before begin visiting lenders, you can make the entire mortgage approval process much simpler and quicker.