Your FICO Credit Score

Your FICO Credit Score
By Steve Meyers
August 31st, 2014

One of the three key items that a mortgage lender will look at in evaluating a borrower to commit to lending him / her money is their history of repaying their prior debts. The other two are available cash and cash-flow (monthly income). Lenders contract with a company originally called Fair, Isaac and Company, today its’ referred to as (FICO) to put together a “FICO Credit Score” based upon its’ research into your debt payment history.

There are several significant changes that have been proposed by FICO for its’ future analysis. They may incorporate these changes in their analysis by the end of 2014. They’ thinking about placing less weight on your outstanding Medical Debt, and removing “Past Due Collection” items that you recently paid off, in their analysis.

However, please recognize that the Capitol Markets and Mortgage Lenders may not immediately follow suit and incorporate those two changes in their analysis, especially reducing the weight of the outstanding Medical Debt. Mortgage Lenders may still look at your financial obligation and responsibility to pay off any Medical Debts that you’ve incurred.

Here are some “Do’s” and “Don’ts” to increase your “FICO Credit Score”

1.) Revolving Credit (credit cards)
a.) You should have two (2) or three (3) lines of Revolving Credit but, no more than four (4).
b.) Never exceed 25% to 30% of your credit limit on any one card. If you have a credit card limit of $5,000, never have more than $1,500 on that credit card.
c.) Once you have a positive history with a Revolving Line of Credit, request an increase in your credit card limit to the next higher level. Continue to request higher limits. The higher your total credit limit on all of your lines of Revolving Credit, the higher your FICO Score.
d.) Do not cancel a Revolving Line of Credit unless you have more than four (4) credit cards.
e.) There is a high weight in evaluating your credit worthiness is your consistency in payments on your Revolving Line of Credit.

2.) Installment Loans (student loans, car loans, real estate loans)
a.) FICO will look at the consistency in you payments on these Installment Loans
b.) You should never let any of your Installment Loans go to a Collection Department or to the point where you have a court ordered Judgment against you.

3.) Past Due Collection Accounts
a.) Paying off Past Due Collection Accounts currently has a negative impact on your credit score. It takes a negative “old item” that has less weight in the scoring system and brings it to the forefront and makes it negative “Recent Activity” which has a much higher weight in the scoring system.
b.) If you have some extra cash, it may be more advisable to pay down your revolving Lines of Credit so the outstanding balance(s) are below 25% of your credit limit on those accounts.

Your should seek the counsel of an expert prior to making any decisions regarding your credit.

If you would like to read other real estate articles I’ve written and published on-line, go to;
http://www.ourseattlehome.wordpress.com

Steve Meyers is a Managing Broker at Keller Williams Real Estate in Seattle, Washington. He can be reached at (206) 972-3328 or smeyers@kw.com.

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