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.

###

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.   

Safety First! Useful tip when showing homes or when you feel seriously threatened.

A week ago the social site Reddit asked about the most random 911 calls a dispatcher had ever received.  Keith Weisinger had one that most likely saved a life!

The distressed victim had called 911 and called for a PIZZA but when in fact she was asking for help against her abusive and drunk boyfriend.  The dispatcher was quick to understand that she had not made a mistake but in fact called to report her boyfriend to the authorities for being physically abusive to her.

To learn more about the story, click here.

This brings me as to our brokerage procedure that we have when showing homes.  One is to log into a shared document when we have showings and enter the client's car information, as well as to take a picture of the car and get the license plate number.  The other one is to call the office when in distress and ask for "the red folder" and give the address. 

But this idea is even better because it eliminates someone calling a third person when in fact you can do it yourself.

I hope to God no one has to make this type of decision but better be prepared than sorry.  I only pray to remember this when I am in danger.