5 Credit Score Mistakes

5 Credit Score Mistakes As banks shy away from making risky consumer loans, a mediocre credit history just won't cut it anymore. To get the best rates on mortgages, credit cards and auto loans, you need a killer score.

Your FICO score is a numerical measure of your creditworthiness that ranges from 300 to 850. While there are a few different credit scoring systems available, it's the FICO score, created by the Fair Isaac Corporation, that most lenders look at when they check your credit. Rates provided by Bankrate.com. Lenders have already raised their standards by about 20 to 40 points this year, according to Barry Paperno, consumer operations manager at FICO. So while a score in the 720 to 740 range would have gotten you the best rates on a mortgage in the past, you now need a score of at least 760 to snag the best loans. "Requirements are higher than in the past so you're going to have to be more diligent this year," said Paperno. FICO focuses on five categories when calculating your score: How much debt you have, your payment history, your debt utilization ratio (how much you owe in relation to your credit limits), how far back your credit hi story goes and your mix of various types of credit. Here are a few things that can wreak havoc on your score and wreck your chances of getting an affordable loan: 1. Making late payments A single late payment on a credit card or other loan could ding your score by as much as 110 points if you already had a great score and 80 points for someone with an average score. So the best thing you can do to improve your score is make payments on time. "This continues to be the number one reason scores are lower," said Paperno. "In addition to being a heavily weighted part of your score, if you're late on a payment, it's going to continue to appear on your credit report for about seven years." If you've made mistakes in the past, you can't change them, but you can outlive them. The longer it's been since you were late on a payment, the less of an impact it will have on your score, but "your history does follow you," said Paperno. Since payment history accounts for about 35% of your total score, it's really important to start paying on time. 2. Carrying a big balance Your debt utilization ratio accounts for almost 30% of your score. So carrying too much debt will not only cost you a fortune in interest, it can also destroy your credit rating. "The best thing to do is pay your bills on time and pay as much of the balance as possible to try to keep your debt utilization ratio down and raise your credit score," said Bill Hardekopf of Lowcards.com. As part of the CARD Act that went into effect last month, credit card issuers must now include a chart with your bills that shows how long it will take to pay off your balance if you only make the minimum payments. The chart will also display how much you need to pay each billing cycle in order to completely pay off your balance in three years. Hardekopf thinks the new information will be a huge wake-up call for most consumers, and even he was alarmed by the calculations on his own statement. "It was shocking," he said. "This is going to have a dr amatic effect on how much people are paying when they see it in black and white, and will be a positive move for their credit score." 3. Closing a credit line As credit card companies jack up interest rates and add inactivity fees to compensate for lost revenues, it's tempting to just close your accounts. But closing a line of credit could impact your debt to utilization ratio, said Hardekopf. For example, if you have two credit cards with a limit of $1,000 each and a $400 balance on one card, closing the other account will immediately double your debt to utilization ratio from 20% to 40%. But the negative effect varies greatly. Closing one card could have a very small impact if you have lots of other high-limit cards. You can also counteract some of the impact by opening up a new line of credit. But beware: that can also impact your score. 4. Opening a credit line "When you open a new account, you'll knock some points off your score," said Paperno. "The reason why is that the people who open new accounts tend to be of a higher risk level immediately after opening a new account." In order to open a new account, a credit card company will need to check your credit, and a typical "hard" inquiry like this will lower your score by about five points, plus the cost of opening a new line of credit typically ranges from five to 15 points. But the temporary ding only lasts about six months, so if you're in a stable financial situation, the score reduction could be worth it, said Paperno. "You can look at it as a long-term strategy and go in with the idea that you might lose a few points now but in the long run you might be better off because you'll have more credit available," he said. 5. Defaulting Defaulting on a loan is the single worst thing you can do for your credit, said Rex Johnson, founder of credit union consulting firm Lending Solutions Consulting. And given the down economy, more people are damaging their credit scores through foreclosures, credit card charge offs and bankruptcies. A home foreclosure, for example, might dock about 200 points off your score and a short sale could cost you around 80 to 90 points, said Johnson. Declaring bankruptcy could lower a good score of 750 by up to about 250 points, Johnson said. While most negative information stays on your report for seven years (bankruptcies can stay on for 10 years), it's never too late to start rebuilding your credit. "People have been hit hard by the economy and those who had really good scores now have scores in the 500s and want to just give up," Johnson said. But certain good behaviors like making on-time payments, taking out a small loan and paying it off a nd keeping a low balance, can get your score back up in the mid-600s or low 700s in a little over 2 years, said Johnson.

The Luck of the IRISH...

A NEW HOME FOR ST. PATRICK DAY...

The Baileys subscribed to my website www.parkersutahproperties.com, about one month ago. Enjoying full access to the Realtors coveted "Multiple Listing Service" through my website, I noticed they were diligently researching Homes on a consistent basis and offered my services in researching along with them.

After several phone calls and answering questions, the Baileys decided to meet with me at my office and begin the process of really narrowing down criteria and finally finding their first home. With a strong desire to take advantage of the $8,000.00 First Time Home Buyer tax credit before it disappears April 30th, we diligently began the process of viewing and weeding out Homes that the baileys were not impressed with.

Mr. Bailey had expressed to me on several occasions his hesitancy in working with a Realtor, but admitted that upon meeting me he quickly became relaxed and comfortable realizing that I am not a "sales man". I assured him my job is not to sell homes but to market, advertise, advise and inform (The homes typically sell themselves with the right exposure).

We found a great home for the Baileys, a Townhouse only minutes from BYU. I take personal pride in helping the Baileys find their new home, in being part of an experience from start to finish that has actually enriched their lives. When we closed on their NEW HOME they were so relaxed, calm and happy. The bailey home may have enriched their life, but the opportunity to represent their best interest and earn their trust has absolutely enriched mine, and has made me better at my job!

Thank You Bailey's, and Congratulations.

The Arnold Family...

The Arnold Family...

I had knocked on the front door of the Arnolds home late last year, they had been selling their home on their own for quite some time and were of course skeptical as too whether or not a Realtor could actually provide results!

I am not much of a sales man, so in my own way I introduced myself, told them I could help if they were ready and left them with some literature to study and think about.

About a week later I followed up with and was interviewed by Mr. Arnold. After a foray of interesting questions and answers, the Arnolds invited me to visit with them at their house. I remember meeting them at about 9:00pm, they were so open, friendly and excited to meet with me, opening their home, their Hopes for the future and their expectations of me to sell their home in the fastest amount of time for the highest amount possible.

Throughout the listing process the Arnolds became increasingly excited to sell their home, always making sure it looked immaculate and was ready to show at a moments notice. when the offer came they consistently impressed me with how analytical they were. And how gracious they were in listening to my advice on negotiations, but more important than that is the look of excitement on their faces when I showed them their new house (Like little kids discovering santa had delivered gifts and not coal).

Working with the Arnolds was such a rewarding experience, reminding me how important my role can be in helping people realize dreams. I could have been anything I wanted, a Lawyer, a service man, I could have continued to Pursue Skateboarding, became a Chef, but I chose to be a Realtor! And every time I see that look of excitement of fulfilled dreams on a clients face like I did with the Arnolds, I know I made the right choice, and this is why I love my Job!

My Polish Closing...

Kadi & Johnny are about to be married. Several months ago Kadi via my website www.parkersutahproperties.com contacted me about buying her first home. We spent the Christmas holiday and the New Year conversing back & forth via Facebook, Text messages, Email and phone calls about Criteria, Current Housing conditions and how they could take advantage of their $8,000 tax credit before it expires on APRIL 30th, 2009.

In February when Kadi had moved to the Utah County area, her, myself and Johnny met at my office. After we clarified their needs one more time, we began the fun process of viewing homes. Through out or experience They were always excited to find their first home, when we finally found the home of their choice they were thrilled, as I prepared the necessary paperwork and discussed with them the data to determine an offering price. They were full of questions which made the experience even better because as questions were answered they become more & more excited but also more confident in their decision.

I wish you both huge amounts of luck, It was such a pleasure representing you and I look forward to working with you again in the next 3 to 5 years. Congratulations on finding a wonderful home.

Parker Smith, REALTOR®
Certified Negotiation Expert
Windermere Real Estate
(801) 836-4393
ParkerSmith@Windermere.com

Buyers Who Wait May Lose a Lot...

Potential home buyers who delay have a lot to lose.

First-time home buyer and move-up tax credits worth $8,000 and $6,500, respectively, expire April 30. Buyers who qualify get a dollar-for-dollar reduction in taxes or a cash payment if they don’t pay enough taxes to cover the credit.

Other factors that should spur buyers:

Low mortgage rates. If the Federal Reserve stops buying mortgage-backed securities at the end of March, 30-year rates will almost certainly rise to more than 6 percent.

Rising prices. About 30 percent of markets are already experiencing price increases. Prices are falling in 12 percent of markets, says Fiserv (but that only helps if you want to live there).

Source: Money Magazine, Beth Braverman (03/02/2010)

Being a Landlord Can Be Increasingly Profitable

Despite falling rents and rising vacancies, the profitability of residential rental property is improving.

Investments in apartment complexes are generating annual returns of 7-8 percent immediately because purchase prices have declined.

Buying a rental property isn’t for everyone. It requires putting down at least 50 percent in cash because banks are reluctant to lend more. And buyers need to be able to hold the property for at least three to five years or more to give the investment time to gain value.


Source: The Wall Street Journal, M.P. McQueen (02/20/2010)

Foreclosure Bargains Getting Harder to Find

Home buyers hoping to snag a really good deal on a foreclosed home are finding it increasingly difficult because supply is shrinking.

The number of foreclosures that are available for sale nationwide fell to 617,000 in December, down from 845,000 in November 2008, reports Barclays Capital.

Not only have attractive homes in popular neighborhoods already been snapped up, but also government help for distressed buyers is delaying more foreclosures.

Demand is driving up prices. Investors say typical prices have climbed from 75 percent of appraised value to 85 percent or higher when there are bidding wars.

Source: The Wall Street Journal, James R. Hagerty (02/23/2010)

Could the Tax Credit Be Extended Again?

The pressure is increasing on Congress to renew the homebuyer tax credits for a third time.

The first $7,500 tax credit was passed in 2008 and required first-time buyers to repay the credit over 15 years. A few months later in 2009, Congress expanded the credit to a maximum of $8,000 that didn’t have to be paid back.

At the end of last year, Congress extended the benefit again until April 30 with an extra two months on top of that to close. A new credit of $6,500 was added for move-up buyers, too.

Now representatives of the housing industry are lobbying for another extension. Some experts, including Mark Zandi, chief economist at Moody’s Economy.com, who supported the earlier credits, think the time has come to let it go.

“It’s worn out its benefit,” he says. “If you extend it again, it isn’t going to do much, and what you’re doing is providing a tax break to folks who bought anyway.”

Source: The Wall Street Journal, Nick Timiraos (02/22/2010)

IRS Clarifies What's Needed to Claim Tax Credit

The Internal Revenue Service has clarified which documentation taxpayers need to submit to claim the first-time and move-up homebuyer tax credit.

While the IRS is still requiring the filing of Form 5405, it is not demanding that all parties’ signatures be on the HUD-1 settlement document in areas where requiring both the buyer and the seller to sign the document isn’t common.

The IRS clarification says: "In areas where signatures are not required on the settlement document, the IRS has clarified that it will accept a settlement statement if it is completed and valid according to local law. … The IRS encourages those buyers to sign the settlement statement prior to attaching it to the tax return.”

For repeat buyers, the IRS is seeking documentation that home buyers have lived in the previous property for a consecutive five of the past eight years. Proof can include property tax records, home owner insurance records, or mortgage interest statements.

Source: Washington Post (02/20/2010)

2010: The Year of the First-Time Buyer?

According to the Chinese calendar, 2010 is the Year of the Tiger. But in real estate, 2010 may come to be known as the “Year of the First-Time Home Buyer.”

Mark Zandi, chief economist at Moody's Economy.com, says there will be 1.84 million homes sold to first-time home buyers in 2010, compared with 1.73 million in 2009.

These buyers will invariably make some mistakes that they will come to regret a few years down the road, some experts say, including failing to use a real estate professional to help them manage the transaction.

Real estate professionals have the time and the knowledge to sift through thousands of listings, creating market analyses to judge pricing and other key features, points out Ray Boss Jr., a practitioner with RE/MAX Realty Group in Maryland.

"I would want someone who is going to look out for my interests first and foremost," says Boss. "Someone who knows the contracts, who has experience negotiating, and who can walk me through the entire process smoothly — step by step — and make sure I get the house that's right for me."

Source: U.S. News & World Report, Kimberly Castro (02/18/2010)

Home Price Reductions Level Off

The share of homes on the market with price reductions declined to an average of 21 percent as of Feb. 1, according to Trulia.com, which has been tracking the information since April 2009.

This is a significant decrease compared to November 2009, when 26 percent of homes had at least one price reduction

The total dollar amount cut from home prices dropped to $22.6 billion as of Feb. 1, down from $28.1 billion in November, a 19 percent decrease.

The average discount for price-reduced homes is holding steady at 11 percent off the original listing price.

Here are the cities with the largest decrease in listings with price reductions between last November and this month, according to Trulia.

• San Francisco, -46
• Oakland, Calif., -43
• Sacramento, -42
• San Jose, -40
• Indianapolis, -39
• Seattle, -37
• San Diego, -33
• New York, -33

Source: Trulia.com (02/16/2010)