As lenders get more conservative about lending money and credit card companies raise their interest rates, the single best action item you can do to improve your buying power is to improve your credit score, according to Silicon Valley Association of REALTORS® affiliate Robert Callaway.
"The better your client's credit, the more chances they have of receiving a lower interest rate on mortgages, car loans and credit cards," says Callaway, who is with Venture Callaway Mortgage & Realty.
FICO scores range from 300 to 850. If your FICO score range is between 350 and 539, Callaway says lenders would shake your hand and say, "Nice talking with you," and send you on your way. Now, because of the subprime meltdown, if your credit score is between 540 and 619, lenders would also say, "Nice talking to you" and say good-bye.
Callaway said the FICO score range between 620 and 699 is a move toward an A; 700-739 range an A; and between 740 and 850, an A+ to an A+ +. Only 40 percent of the surveyed population ranks above 750, with18 percent ranking between 700 and 749, 27 percent between 750 and 799, and 13 percent ranking 800 and over.
Your credit score depends on the types of credit you use, your payment history, the amounts you owe and age of credit. Callaway shares tips on how you can improve your score in each area.
Apply only for credit you really need.
Callaway said the hierarchy of credit is as follows, with mortgage loans first, followed by auto and student loans, bank credit cards next, and store credit cards last. Apply only for credit you really need. The ideal would be a mortgage loan, a car installment loan and an average of three to six credit cards.
"Don't fall for the department store offers of a 10 percent discount or the free beach towel for signing up for a new card," Callaway said.
Pay your bills on time.
Payment history is the single most important factor in determining your credit score, and comprises 35 percent of the total score. Making on-time payments is the best way to start rebuilding your credit rating.
Pay down your debts.
"The amount of credit has a minimal effect, but the amount of debt you carry weighs heavy," Callaway said.
"Realtors should ask their clients if they are planning on a big purchase soon and advise them against it," he recommended. "A large purchase right before applying for a mortgage could test the limits of their credit."
Big balances can hurt your score, even if you pay your bill in full each month. Limit your charges to 30 percent or less of a card's limit –10 percent is optimal.
Don't close old accounts.
"How long you have credit gets better with age," said Callaway.
Your oldest cards establish a long credit history, so use your oldest and highest-limit cards every few months to charge a small amount, paying them off in full when the statement arrives. Open accounts in good standing raise your score because they strengthen the total credit available to you. Closing your old accounts would shorten your credit history.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
For further information, please email or call the SILVAR office at (408) 200-0100.