The Real, Big C: How Are Credit Scores Calculated

What is easy to damage and hard to repair? Credit scores. Credit scores are so hard to repair because it is a weighted formula based on several factors. One or two mishaps may not gravely affect credit. However, any mishap is still important as credit scores follow people like shadows. Credit scores will make or break a buyer seeking to purchase a home. A credit score not only determines how much the bank will loan a buyer, but will also determine the interest rate for the life of the loan. Consider a 4.25 percent interest rate and a 6.75 percent interest rate on a mortgage of 279,000. The difference in monthly mortgage is roughly 500 dollars. In order get the best interest rate one needs to minimize credit nicks and dings by understanding how credit scores are calculated. 

What is my Credit Score?    A credit score is a formula determined by an individual’s use of credit compared with other people. The FICO (current name for the original company of Fair, Isaac and Company founded in 1956) score is the most frequently used score. It assesses five separate categories: length of history, payment history, the amounts owed, new credit, and the type of credit. There are three major credit bureaus and they each have their own formula similar to the FICO score, but they assess those same five factors. 

How Do I Fix My Credit?   The best way to fix credit is to eliminate debt as quickly as possible, starting with the line of credit with highest interest rate. It has been stated to put three times the amount of the bill towards the interest. Pay attention to the little number in the corner of your bills that states how long it will take to pay off the bill. That is a good indication of how your credit score is affected. The quicker you pay that little number off, the larger the number will become on your credit report.

There are a multitude of companies that suggest they can erase your debt, but that is not true. Fixing your credit can take years, seven to be exact. Most performance issues against your credit file generally do not appear on your credit after seven years.

If you cannot eliminate the debt, make attempts to lower your interest rate in order that your bill does not continue to skyrocket. Sometimes this is as simple as calling your creditor and negotiating a good rate.  Make payments on time and cease using the line of credit if there is more available. Finally, treat the creditors as you would the police. In other words, do not make any sudden moves. Credit wise this means do not open any new accounts, and whatever you do, do not close existing accounts.

What Credit Score Do I Need to Buy a House?   There is no set number that you need to buy a house because different lenders seek different numbers. However, there are numbers that your score should generally fall between in order for you as a homeowner to obtain a loan and a good interest rate.  An individual interested in purchasing a home should seek to keep a score of 700 or above.  Banks will not necessarily turn away persons with scores below 700, but it will be more difficult to secure a low interest rate.

Atlanta Real Estate Brokers is a full service real estate brokerage offering residential, land and commercial services.  We can be reached at www.AtlantaRealEstateBrokers.com .  For more assistance with credit counseling, try:  http://www.clearpointcreditcounselingsolutions.org/ with offices here in Atlanta.