ABC's of Buying Florida Real Estate




Understanding Your Credit Rating

  Perhaps the most important factor in obtaining a good interest rate on your mortgage is your "credit history." We'll try to help you here to understand your credit rating and the mortgage terms you can expect from a lender based upon your credit rating or "credit score".

  When you apply for a mortgage from a lender or broker, by far the most important factor is your credit. In some cases, your ability to get a mortgage is determined entirely by your credit. Generally, there are other factors but your credit rating is probably the single most critical factor that determines whether you'll get a mortgage loan at all and at what interest rate you will get the mortgage.  The better your credit rating and the better you manage your credit, the lower your mortgage interest rate will be.

Before You Start Looking for a Home

  Before you start looking for a home, take the time to order your credit report from all three major credit reporting agencies.  The three major credit reporting agencies are:

PO Box 2104
Allen, Texas 75013
PO Box 390
Springfield, PA
PO Box 740256
Atlanta, GA 30348

A General Guide to Credit Ratings

  First a definition -- your "credit rating score" is generally expressed as a "FICO score"  FICO stands for Fair Isaac Credit Organization, a standardized way of expressing your credit worthiness. It's a measure of the risk a lender is taking in providing you a loan.  Your credit risk is calculated from a credit report using a standardized formula.  

  To develop their specific credit scoring model, each mortgage provider selects a random sample of its past and current customers, or a sample of similar customers if their own sample is not large enough, and analyzes it statistically to identify those characteristics that relate to creditworthiness. Then, each of these factors is assigned a weight based on how strong a predictor it is of who will likely be a good credit risk. Each creditor may use its own credit scoring model, different scoring models for different types of credit, or a generic model developed by a credit scoring company.

  Under the Equal Credit Opportunity Act, a credit scoring system may not use certain characteristics like -- race, sex, marital status, national origin, or religion -- as factors. However, mortgage providers, like all creditors are allowed to use age in a properly designed scoring system. But any scoring system that includes age must give equal treatment to elderly applicants.

  Factors that can damage your FICO credit score include late payments, absence of credit references, and unfavorable credit card use.

  As an example, according to several sources, your FICO credit score is made up of five major components:

Payment History
Amounts Owed
Length of Credit History
Pattern of Credit Use
Types of Credit in Use
About 35% of your score
About 30% of your score
About 15% of your score
About 10% of your score
About 10% of your score

  Here's the bottom line on credit ratings.  If you want a home of your own, start today to think about everything you do, every purchase you make, and every bill you pay or let slide, in terms of what effect it may have on your credit rating.

  "A noted Sarasota FL real estate agent we know says, "Remember to check your credit report once a year. By some estimates, up to 50% of all credit reports contain serious errors that could impair your ability to get a mortgage.


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