It’s a Balancing Act: Credit and Debt

by Ur Dream Team! by Laura & Adele 11/24/2019

Image by David Pereiras from Shutterstock

Your FICO score is a key factor used to determine if you qualify for a mortgage. The Fair Isaac Corporation (FICO) is the creator of the most common credit score used by home loan providers. The algorithm used to create your score is a closely-guarded industry secret. But in general, it factors in your payment history, debt burden, length of credit history, and recent applications for credit. Your FICO score is powerful but there are things it cannot account for.

It does not indicate how much you can afford.

It does not reveal how much you have saved up for a down payment.

It does not understand your ability to budget.

It does not display your current bank account balances.

What does it do?

Your FICO score tells you (and your potential lender) how you have handled credit over the length of your credit history. Scores range from 300 (poor) to 850 (excellent). The primary factors that can hurt your credit score are late-payments and the debt-to-credit ratio.

Late Payments

Make your payments on-time every month especially if you are hoping to secure a mortgage. The more on-time payments you have the better your score will be. In some cases, on-time payments can dilute the impact of late-payments in your credit history. Newer incidences can be more detrimental to your score than older late-payments. Payments that are received 60, 90, or 120 days late count more against you than those that are late by over 30 days.

Credit Utilization

The total amount you owe is a consideration but the relationship between how much you owe and the credit available to you weighs more heavily when it comes to determining your FICO score. Another term for this is your credit utilization. Your debt-to-credit ratio is a measure of how much of your available credit you are using within a 30-day window. The higher the ratio of debt compared to available credit, the more likely you are to have a lower FICO score.

For instance, let’s say you and your partner both owe $1000 on credit cards. Your available credit is $1500, making your credit utilization two-thirds or 66 percent of your available credit. Your partner’s available credit is $4000, making their credit utilization 25 percent of their available credit. If all other factors are equal, your partner’s FICO score will appear higher. 

Ask your real estate professional for recommended financial resources in your area.

About the Author
Author

Ur Dream Team! by Laura & Adele

CURRENT HOME OWNERS / SELLERS: Benefits of partnering with "Ur Dream Team" by Laura & Adele in SELLING YOUR HOME:

  • Complimentary comparative market analysis of your home
  • Through my experience, we will find qualified buyers
  • You will receive the highest and best price for the least amount of your time spent
  • All negotiations conducted by myself (not outsourced or performed by a 3rd party)
  • Offering intimate personalized service

FUTURE HOME OWNERS / BUYERS: Benefits of partnering with "Ur Dream Team" by Laura & Adele in PURCHASING YOUR NEW HOME:

  • Expert knowledge in current market trends
  • Saving you time by quickly narrowing down your search
  • Finding the best home that fits your individual needs

WHO IS TRI-CITY REALTY?... We are the EXPERTS to help you BUY and or SELL your HOME!

  • Offering buying and selling residential realty services, primarily serving clients in North County San Diego. Available anywhere.
  • Your local home-town office (Small but Mighty)
  • Our team averages 20+ years’ experience in San Diego area residential realty