The Mortgage Blog

The credit score – as mysterious as a gypsy palm reading? Kind of, yea. Sometimes I’m surprised that some credit scores are better than it appears they should be and others are worse. Why? I have no idea. This system is not perfect and nobody knows exactly how it works (strange but true). I have a lot of information on this topic for you, so I’m going to split it up into two articles. The first will address how credit scores are derived, what affects them and the range of scores from good to bad. The second article will cover steps to take to improve a poor credit score or to maintain a good score..

There are some key factors that are used in determining your basic score;

1) Your payment histories – recent late payments hurt a lot. The older a late payment is the less impact on your score.

2) Number of accounts that have balances. If you have a dozen charge cards with balances consolidate them down to 3 or 4. There is no reason to have Macy’s, Nordstrom, GAP, Sears, Kohl’s, Liz Taylor, Mervyns, etc and owe $89 to each of them! Use your Visa card – they all take it!

3) Proportion of balances to credit limit. This means don’t max out your credit cards. When your credit cards are at there limit it is a big red flag. It’s best to never use more than half of the available balance on a charge card.

4) Length of time accounts have been opened. Old accounts with long payment histories are really great for a credit score. This is the reason why you should NOT close charge accounts that you are not using. Just shred the card and stop using it. This way the account remains active and continues to have a positive impact on your score.

5) Credit inquiries. An inquiry shows up when someone checks your credit report. Lot’s of inquiries indicate you may be trying to open a lot of new credit which is a red flag. If you get a new credit card every six months to get the low intro rate your credit score will suffer because of constant inquiries and the number of accounts which have been opened in the recent past.

6) Collection Accounts and Public Records. If you owe a creditor and you’re not paying they will send the account to a collection agency. This shows up on your credit report – bad. When you get a bill from the doctor’s office that your insurance did not cover do yourself a favor and pay it. Then you can try to get the insurance to reimburse you if they were wrong. Otherwise the doctor’s office will waste no time going to collection. Medical collection accounts are so common it’s ridiculous. Public records include Judgments, Tax Liens, Bankruptcy’s, Etc, all bad and should be avoided at all costs to keep your credit score in the positive range.

What is the positive range? Well, credit scores run from 300 (worst) to 850 (best). Generally speaking, anything under 500 is horrible. From 500 to 575 is very bad and 575 to 620 is bad. Then from 620 to 680 is OK and 680 to 720 is good. If you are over 720 you have excellent credit and you’ll get better rates on everything from credit cards to home loans and even insurance! Your credit score influences the cost of many important things in your life and should be taken very seriously. Next time we’ll talk about how to keep your score high or to get it higher.

Previously published on  The Scoop on Michigan Real Estate

Good or bad? A home inspection blew up your home sale? That only happens to some other poor sucker in tales told at Peabody’s bar on Friday afternoon, right? Not so much. Recently one of my first time homebuyer clients has made three separate offers on three different properties and the home inspection resulted in the death of all three deals! The same home inspector each time and at a cost of $450 per inspection. The buyer has paid enough to the inspector to have made many of the repairs that the inspector noted. It seems odd that every house this guy goes into has potential drainage issues, or black mold under the deck (under the deck??), or the siding is totally wrong, the roof will blow off in the next storm or the addition is a fire hazard!  A coincidence?  Well, there are bad apples in every business.

Are home inspections bad? No way. Home inspections have become crucial tools in making a sound decision when buying a home. This inspector, however, is an ALARMIST and presents his findings in a way that makes the buyers only choice to duck out of the deal. A good home inspection will point out the faults of the property in an objective way and allows room for people to make their own decisions about whether an issue is a deal breaker, no big thing or a renegotiation. Making every problem into a major defect is not in the job description. Can’t we all just get along?

Really, one of the things that seem to have gotten lost over the last few years is that buying an existing home is buying a home USED. OK, when you buy something second hand it is not brand new. Do we understand each other? Plus, part of being a homeowner is the cost of maintaining a home. Statistics show that the average cost of maintaining a home over time is 1 to 2% of the homes value per year. This is for things like roof, furnace, painting, water heaters, etc. So, if the inspection reveals that the house will need a new roof in 5 years that’s OK. If the house was built in the 50’s then it probably has 50’s electrical and plumbing. What else would you expect? I mean this is not rocket science. The bottom line is that a buyer should expect that the house is going to need routine maintenance on an annual basis and some general updating over time.

Buyers should understand that no home is perfect.  Sellers should probably get a home inspection done prior to putting the house on the market.  This way they will know upfront what an inspector may find and they can address it in advance.  This will make the process a lot easier when a buyer has his own home inspection.   Some advance warning and a little knowledge can turn things around and keep the sale on course.  Proper communication and understanding goes a long way!

Originally posted on The Scoop on Michigan Real Estate