The 5 Percentage Breakdowns

Those looking to secure a loan learn very early how important a credit score really is. It can determine whether or not a lending institution approves your loan application, and your credit score also influences the interest rate offered to you by a bank or other lending company.

A credit score is a number assigned to you based on an analysis of your credit history. All of your credit history information is entered into a computer. The computer analyzes that information and then assigns a number. The major credit ranking agencies do not use the same software so you might be assigned a slightly different number at each of them. Credit scores are sometimes referred to as FICO scores. This is because Fair Isaac Corporation (FICO) developed the software most commonly used to determine credit scores.

What aspects of your credit history matter most when you’re FICO score is calculated? Different factors are assigned different percentages in the calculation of your overall credit scores. Your payment history, amounts owed and the types of credit you have are all factors in your personal FICO score. Here is an approximate percentage breakdown:

Payment History

Things like records of amounts and schedules of payments (including late payments) accounts for 35%. Lending companies see the length of time you’ve been past due as well as the amount of time since you had a past due payment.

Amounts You Owe

Any loans or a debt that you have outstanding is 30% of your score. Lending companies have a chance to see how many accounts you owe money to and what balance you currently owe. They also take a look at your credit lines and for indications that you might currently (or in the recent past) have been overextended.

Length of History

This area accounts for 15%. Lending companies see how long your accounts have been open and how much time has passed since there was activity in your accounts. The longer and better your credit history, the better your scores will be in this area.

Types of Credit

The number and types of accounts you have makes up 10% of your FICO score. You will receive a better score is there is a variety of account types rather than just credit card accounts.

New Credit

This area is also worth 10% of your credit score. Under this heading, lending companies see the number of new credit inquiries you have made and the number of accounts you have opened recently. Banks and lending institutions want to ensure that you are not trying to open a lot of accounts at the same time and overextending yourself and your financial obligations.

Now you might be wondering, what is considered a good credit score? Credit scores usually fall between 350 and 850. The higher your score is the better. The higher your score is, the less of a risk you are perceived to be. Banks and other lending institutions feel they are more likely to get their money back from people with high FICO scores because these kinds of people have a good history of managing and meeting their financial obligations. The less of a risk you appear to be, the more likely you are to have your loan application approved.

Have can you improve your card score? It takes time, of course, but it’s never too late to start practicing proper financial management strategies. Make sure you pay your bills on time and keep your credit card balances low. Also try to avoid opening a lot of new accounts in a short period of time because this can alter the score in the new credit section of your FICO score. Lending institutions are looking for people that are able to successful manage their financial matters so it takes time to make a favorable impression if your current credit report and score are poor.

You also want to take a close look at the information on your credit report and ensure that it is all up-to-date and accurate. If the credit agencies have incorrect information to plug into the computer, then your FICO score may not be correct.

Credit and debt can be difficult for anyone to handle, but you need to remember that it is not only the amount of debt you have that influences your FICO scores, but also the manner in which you manage it.

Often, when your lender scrutinizes your loan application for a new home or piece of property so finely that it is finally turned down, it can be very distressing. If this happens, you should be able to understand just why such a decision was taken and do what you can to remedy the situation. The cause for rejection given below will help you understand just why it happens to some people.

Causes for rejection:

The appraised value is far too low: Your lender perhaps found the ratio of the loan amount to the sale price or the appraised value of the property to be substantially lower than the purchase price or loan-to-value (LTV) ratio. Or perhaps the LTV is higher than your lender is allowed to approve. Then, perhaps you have applied for 90-95% of the purchase price as the loan amount. A low appraisal will then make your loan request far too large.

If the seller’s price of the property far outstrips the prevailing rates in your locality, you would be best advised to renegotiate the price with him so that it conforms to the prices in the area. It should also be one which your lender would not refuse in order to pass your loan request. If this can’t be done, it might be a better idea to accept a smaller loan amount, and pay the balance from your personal funds.

Insufficient funds: When your lender goes through your financial information and you’re verification of deposit, he will find that you do not have enough funds to make the necessary down payment and cover closing costs. Even if these funds do not come from a loan, a gift could go a long way. Alternatively, you could ask the seller to take back a second mortgage on the property. This would help lower your down payment or get the seller to pay some of the closing costs, perhaps the origination fees. After all this, you could ameliorate the situation by just waiting in the wings, while you begin a savings scheme.

Do you have insufficient income? Lenders will refuse your loan application if they find that the mortgage payment on your property exceeds 28 percent of your monthly gross income. In addition, if your total debt including mortgage payments and other installments exceed 36 per cent, you stand to be refused. The figures are higher for FHA loans. But the situation can improve for you if your credit card record is good and you can prove that you already are carrying a huge household expense including rent or mortgage payments, perhaps your lender will swing his decision in your favor. This is just why you need to make a clean breast of your income and expenses while making an application.

Up to your eyes in debt: Often, lenders don’t reject applications solely because of the amount of debt they carry on their heads. It is also the many credit cards they possess and revolving credit accounts with proof of rising account balances that come close to the limit prescribed. Such information is detrimental if you are out to prove your creditworthiness. To remedy the situation, you will need to pay off as many of your debts as possible and then reapply for a loan.

Poor credit history: What can be more devastating than to have your loan request turned down due to a history of poor debt repayment habits? If your lender sees that you have a history of making late charges often, owing amounts to the bank or insolvency, he’s hardly likely to pass a loan application for purchase of property. Your lender is surely not going to be tolerant of a bad credit record. Even if you have had a low loan-to-value ratios and debt ratios, you cannot wipe out a history of poor credit.

Rejection is not the end of the world: Just because a lender rejects your loan application doesn’t mean you can never own property in all your life. You can take corrective steps to improve your chances of acceptance. But if you work steadfastly at it, you can work a way round your problems. Find out why your loan application was rejected and work towards loan acceptance.

Often, when your lender scrutinizes your loan application for a new home or piece of property so finely that it is finally turned down, it can be very distressing. If this happens, you should be able to understand just why such a decision was taken and do what you can to remedy the situation. The cause for rejection given below will help you understand just why it happens to some people.

Causes for rejection:

The appraised value is far too low: Your lender perhaps found the ratio of the loan amount to the sale price or the appraised value of the property to be substantially lower than the purchase price or loan-to-value (LTV) ratio. Or perhaps the LTV is higher than your lender is allowed to approve. Then, perhaps you have applied for 90-95% of the purchase price as the loan amount. A low appraisal will then make your loan request far too large. 

If the seller’s price of the property far outstrips the prevailing rates in your locality, you would be best advised to renegotiate the price with him so that it conforms to the prices in the area. It should also be one which your lender would not refuse in order to pass your loan request. If this can’t be done, it might be a better idea to accept a smaller loan amount, and pay the balance from your personal funds.

Insufficient funds: When your lender goes through your financial information and you’re verification of deposit, he will find that you do not have enough funds to make the necessary down payment and cover closing costs. Even if these funds do not come from a loan, a gift could go a long way. Alternatively, you could ask the seller to take back a second mortgage on the property. This would help lower your down payment or get the seller to pay some of the closing costs, perhaps the origination fees. After all this, you could ameliorate the situation by just waiting in the wings, while you begin a savings scheme. 

Do you have insufficient income? Lenders will refuse your loan application if they find that the mortgage payment on your property exceeds 28 percent of your monthly gross income. In addition, if your total debt including mortgage payments and other installments exceed 36 per cent, you stand to be refused. The figures are higher for FHA loans. But the situation can improve for you if your credit card record is good and you can prove that you already are carrying a huge household expense including rent or mortgage payments, perhaps your lender will swing his decision in your favor. This is just why you need to make a clean breast of your income and expenses while making an application. 

Up to your eyes in debt: Often, lenders don’t reject applications solely because of the amount of debt they carry on their heads. It is also the many credit cards they possess and revolving credit accounts with proof of rising account balances that come close to the limit prescribed. Such information is detrimental if you are out to prove your creditworthiness. To remedy the situation, you will need to pay off as many of your debts as possible and then reapply for a loan. 

Poor credit history: What can be more devastating than to have your loan request turned down due to a history of poor debt repayment habits? If your lender sees that you have a history of making late charges often, owing amounts to the bank or insolvency, he’s hardly likely to pass a loan application for purchase of property. Your lender is surely not going to be tolerant of a bad credit record. Even if you have had a low loan-to-value ratios and debt ratios, you cannot wipe out a history of poor credit. 

Rejection is not the end of the world: Just because a lender rejects your loan application doesn’t mean you can never own property in all your life. You can take corrective steps to improve your chances of acceptance. But if you work steadfastly at it, you can work a way round your problems. Find out why your loan application was rejected and work towards loan acceptance.

It is the nature of family to love and protect each other – but how does that transfer to the financial realm? Is your family obligated to help you with your financial debts? Are you obligated to help a family member who is overwhelmed with mortgage payments or saddled with massive credit card debt? Though the answer to both of these questions is probably no, it is a much more complicated than a simple yes or no answer. You and your family are not obligated to help each other with financial problems, but most people would like to help their loved ones with a crisis if it is within their means to do so.

When you face financial problems, it is probably tempting to turn to family first, rather than face the impersonality of a bank or other lending institution. But do family and finances really mix? Financial debts to family members can complicate even the best relationships and in extreme situations it can result in nasty arguments and the severing of familial bonds. Some of the most common arguments families have are over money. On the other hand, borrowing money from family and having that security can ease the stress of any financial crisis. If family members have the money you need in their savings account and are willing to lend it to you, then why not pay the interest to them instead of the bank?

Right from the start, you need to be realistic about your financial situation. As the person looking to borrow money, you should ensure that you have cut back on non-essential expenses and have exhausted all the possibilities before approaching family members for money. As the lender, you must also take a close look at your financial situation and make sure you have the money to offer to your family member. If it is not within your means to help them, then you must say so. There is no point both of you going into debt just because you have the desire rather than the means to honor the request for money. It is hard to say no to family, but sometimes it is necessary.

Where most families go wrong with lending to one another is a failure to establish firm guidelines and rules. You need to be very clear from the start whether this is a gift or a loan. If you give money without specifying which it is (a gift or a loan), then the other person may just assume it is a gift. If you need the money back down the road, he or she may not have the means to repay it, because there was no understanding at the start that the money would have to be repaid at some point. Even though you are dealing with your mother or father or your daughter or your son, you still need to treat the arrangement as you bank or lending agency would. You need to write down the amount being lent and the agreement you have made concerning the amount to be paid back and the amount of time that repayment will take. Writing it down will solidify the arrangement and ensure that no one is taken advantage of.

You and your family should agree on a reasonable interest rate and you should also consider arranging monthly payments (as you would with the bank or other lending institution). It is better to pay the money back gradually over time rather than try to gather one lump sum.

If you are the one borrowing money, you need to make sure that they money is used only for the thing it was lent to you for. If you have borrowed money for the down payment of your house, then all of that money needs to be put into the home, not a new pair of shoes or vacation to the Bahamas. Problems arise when family members think that they money they have lent is being misspent or mismanaged.

As you can see, family and finances can mix if you take a few precautions and clearly outline the expectations on both sides. It is worth putting in the extra effort to prevent uncomfortable holiday dinner scenes.

5 Items you’ll find on Your Credit Report

You’ve applied for a loan at a bank or other lending institution. You’ve done your research, filled out all of the required forms and you think you’ve meet all of their requirements. All you need to the formal approval. Then you find that your application has been denied. The reason is commonly a poor or irregular credit report.

This may leave you wondering: “What is a credit report and why did it have such an impact on my loan application?” A credit report is a document that details your personal financial data and history. These reports essentially show the reader how you manage your finances and the information recorded in it can be the major factor in a bank’s decision to approve your loan application or deny it.

What type of information does your credit report include? Here’s a quick overview of some of the information included on it.

Personal Information

Information in this category includes things like your full name, social security number, current and previous addresses and current and past places of employment. This information is gathered from the information you have given to past creditors so you’ll want to ensure that there are no discrepancies.

Public Records

This section of a credit report details things like bankruptcies and foreclosures as well as any accounts you might have in collection.

Your Credit History

Anyone reading your report will be able to see the number and types of accounts you have. They will also be able to see the payment history for each account and that includes all late payments.

Credit Inquiries

This section of your credit reports lists anytime you made an inquiry for new credit. If too many of these are made in a short period of time, lenders taken a very negative view of you and your financial management abilities.

Your Credit Score

After your credit profile is looked at, a number is assigned that falls between the range of 340 and 850. The higher the number is the better. The higher your score, the less of a risk the lender perceives you as.

Your credit report can have a huge impact on your ability to secure a loan and on the terms that you get when your application is accepted. A poor credit report will mean higher interest rates and poorer terms and could also mean a rejection of your loan application if the lending institution is not impressed with your credit history. That’s why it is so important to secure a copy of your credit report before applying for a loan. You want to have time to correct any debt management issues before a lender sees it, not after.

There are several agencies that can help pull your credit report for you. There are different types of reports you can receive including one with or without your current credit score and one that offers a side-by-side comparison of your standing with all three of the major credit reporting agencies.

You may find yourself surprised with the results, particularly if you decide to use more than one company. The problem may not be with your credit, but with discrepancies in your report. The information may be out of date or contain incorrect information, and though an old address may not seem like a big deal to you, your bank may have questions and those questions could prolong the loaning process. Be sure to take a close look at these credit reports and correct any mistakes as soon as possible to ensure that was your banks see is an up-to-date and completely accurate view of your financial history. You’ll have to make sure that update your information with each major credit reporting agency because they work independently of each other and do not share any sort of information between them.

Any comments made on your report are there for some time. If the comments are positive then that’s a good thing, but a negative comment from a past lender can influence your buying and borrowing power for seven to ten years if that comment is accurate.

It’s important to remember than any sort of financial decision you make, influences your financial future. Take care when managing your debt – your past’s actions can prevent your future dreams from coming true.