What is the FICO Credit Score? Why do I need good credit?

Tu Casa

By Nathalia Cruz-Edmonds

The best way to obtain anything material or services in life is with cash.  If you don’t have cash, you may be able to obtain them with credit.  Credit by definition means to obtain an item or services before payment based on trust of future payment, but not everyone can get credit.  Some individuals cannot get credit because they are too young, they never had credit before, they have bad payment history, or they don’t make enough money.  But what is credit?  Why do you need it?  Who created credit?  But why is it soo important?

Due to the fact that the majority of individuals do not have $30,000 in cash in the bank or under a mattress to buy a brand new car or $250,000 in cash to buy a home, people rely on banks, investors, family members and other ways to borrow that money so they can obtain stuff and then they will pay whom lend them the money later with or without interest.  Credit is needed for various reasons but mainly to borrow large amounts of money.  Others, such as landlords and employers, use it to see your payment history because when you pay on time it translate that you are responsible and trustworthy.

In 1956 Bill Fair and Earl Isaac founded FICO in San Jose, California.  They started a software company that measures the consumer’s credit risk and worthiness.  The FICO Score which is a given value to the consumer’s credit risk and worthiness was introduced in 1989.  The score ranges from 300 to 850.  Depending on where your FICO score lands will dictate if (1) you will be able to borrow any money (2) How much your security deposit will be, if renting a home (3) How low or high your interest rate will be and (4) How much money you will be able to borrow.

Each individual credit score consists of several items:

• 35% Payment History - As agreed with the lender, do you make your payment before or after the scheduled date?
• 30% Debt Burden - How much money have your borrow and how much do you still owe
• 15% Length of Credit History - How long have you been borrowing?
• 10% Type of Credit Used - Do you have credit cards, personal loans, car loans, mortgage,
• 10% Recent Credit Searches - Are you shopping around to get credit?

Currently there are three companies that provide you with scores, Experian, TransUnion and Equifax.  The majority of banks when pulling your credit will pull all THREE credit score companies and pick the middle score.  Do you know what your credit score is?  By law, each credit score company will provide you with a ONE FREE credit score a year.  It is imperative for you to use this free service because you want to make sure your information is correct.  Meaning, all payments have been reported correctly, no new accounts have been added.  A great free way to monitor your credit is by creating an account with Credit Karma, www.creditkarma.com.  You might not see all three Credit Bureaus but you get a good overview which you can monitor monthly for FREE!

There are some cool tricks to help you keep your credit score high besides paying your debt in time!  If you have a credit card, maintain the balance below 10%.  So, if you have a $1,000 credit card with Bank of America.  You should keep your balance lower than $100 every month.

If you had some issues in the past where you lost your job and couldn’t pay on time, if it has been more than seven years, you are allowed to ask the Credit Bureau to remove that trade line from your credit history!  If you have a trade line that is older than seven years but you paid on time, DO NOT REMOVE IT!

If you do not have savings, having a good credit history is important for others to lend you money!  The internet have instructions and ideas on how to clear your credit BUT if you do not have the time and need your credit score improved in less than 9 months there are companies that can help you.  Max Score Credit (www.maxscorecredit.com) is a minority owned company with offices in Silver Springs and Baltimore who can help.  They will pull your credit and help you contact the Credit Bureaus to correct any incorrect information by not adding information that can potentially harm your credit.  For more information contact Ana Garcia, Senior Credit Advisor at 410-864-8600 or via email at agarcia@maxscorecredit.com.  Their rates are reasonable and their results are life changing.

If you would like to learn how to buy a home and create a plan to achieve it, please give me a call at (410) 350-5848.

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Nathalia N. Cruz-Edmonds is a REALTOR with Berkshire Hathaway HomeService PenFed Realty.  To schedule a meeting call (410) 350-5848, at her office (410) 464-5500 or via email at nathalia.edmonds@penfedrealty.com.  You can follow her on Facebook at http://facebook.com/NathaliaEdmondsRealtor.   

RENTING - Breaking your Lease

Tu Casa

By Nathalia N. Cruz-Edmonds

Did you notice the leaves are starting to change color or that the temperature started dropping at night?  You must have notice that Starbucks brought back their Pumpkin Spice Latte.  Yes, Fall is upon us.  Our life also comes with changes, some expected and others unexpected.  But that is not the same when you sign a lease agreement for the home where you are currently living in.  The lease agreement is an enforceable piece of paper, with conditions written in black or white.  It’s a business transaction, no emotion or feelings involved.  The lease agreement does not care if you get sick, get divorced, lose your job, have a baby or get married.  The lease agreement doesn’t care, because it’s a piece of paper.

This piece of paper is very valuable and very costly, to you it will depend on which side you are in the transaction.  That is why you MUST read the lease agreement before you get keys to your new home.  No one can make you sign a lease agreement if you do not feel at ease.  Your landlord cannot deny you of getting a copy of the lease agreement for you to read at home or with your lawyer.  A judge can rule in favor of the Landlord once you get keys, but you must be prepared because the lease agreement is a legal binding document and whether or not you got keys, you made an agreement in writing that is signed, to move to a home in exchange of paying the landlord a certain amount of money.  Ignorance is very expensive.

One clause on the lease agreement that in my nine years experience working in residential property management residents seem to forget until it is necessary is when they need to break their lease.  The resident got a new job at a different city or state, or the resident got transferred or the roommate moved out and you cannot afford the rent on your own or a family member got sick and you want to move with them to help them out.  Unless you are a clairvoyant, you had no clue what the future was going to bring you.  If you knew what was going to happen you would have stayed where you were or a great new opportunity came your way and you must take it.  The lease agreement does not cover these situations.

If your landlord takes you to court for breaking your lease, the state of Maryland will hold the resident responsible for the loss of rental income.  If the lease agreement does not have a specific monetary amount of the cost of breaking the lease, the judge can hold you responsible for the remainder of the lease agreement.  For example, if your lease ends on December 31st but you moved out October 1st, you will be responsible for October, November and December’s rent.  The judge can actually add the cost of doing marketing to reimburse the landlord the expense of re-renting the home you just vacated.  The only good news is, if you know the landlord was able to re-rent the property, your responsibility will end when the other person moved in.  So, you gave keys on October 1st and the new resident moved in on November 1st,  you are responsible for just October and any marketing cost.  Remember, this is only ONE scenario, you MUST read your lease agreement.

In other cases the lease agreement can say, you must provide two months notice and will be responsible for an additional monetary penalty of two months rent.  The only way this will be enforceable is if you sign an agreement that your understand you have to give two months notice and you will pay two months penalty.  If you do not sign this document and the landlord re-rents the home you are not responsible to pay the penalty.  Some leases do not have a clause.

One important thing, in the state of Maryland a military personnel who has received orders for a permanent change of station or temporary duty for more than three months are allowed to break their lease with proper notice.  Read the lease agreement to see if there are any monetary penalties involved.

This article does not serve as legal advice.  If you have any questions, have a lawyer read your lease agreement.  Every lease agreement is different but at the end of the day, if you get keys to a home that is the moment the clock starts and it will end as per the the lease agreement end date.  Make sure to read how much notice you need to give your landlord if you do not wish to renew your lease agreement because some leases have automatic renews!

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Nathalia N. Cruz-Edmonds is a REALTOR with Berkshire Hathaway HomeService PenFed Realty.  To schedule a meeting call (410) 350-5848, at her office (410) 464-5500 or via email at nathalia.edmonds@penfedrealty.com.  You can follow her on Facebook at http://facebook.com/NathaliaEdmondsRealtor.