My Real Estate Blog

Improving your credit scores can get you one step closer to owning your own home!  Even if you have stellar credit, you can enhance your scores by following the steps below:

Payment History (35% impact) Late payments, collections, charge offs will lower your score as much as 100 points. Pay all debts on time.

Outstanding Credit Balances (30% impact) Keep your credit card balance under 30% of your limit. For example, if your limit is $1000, keep your balance under $300.

Credit History (15% impact) Make sure you have active credit. 4-5 accounts established for at least 3 years is preferred.

If you do not have current active credit, it is difficult to raise a score even when removing negative credit. If you don’t have any established credit , you should apply for 2 cards at the same time. Your score will initially drop for approx 6-12 months but may be worth it.

If you have credit cards with a zero balance that you have not charged on for more than 6 months, charge a small amount, then pay it off the following month. Any credit card that is inactive will lower your score.

Be careful when closing credit card accounts. Especially on accounts you have had for many years. When you close an account, you are loosing that credit history which will lower your score substantially.

Type of Credit (10% impact) A mix of credit cards, installment accounts, mortgages will have a more positive effect than a concentration of debt from credit cards only. Be careful though, if you are thinking of purchasing a home do not make any major purchases until your home loan has closed because a large monthly payment could affect your home purchase

Inquiries (10% impact) Each time someone pulls your credit report, your score will drop for 3 to 6 months. Do not open any new accounts unless you need to establish a credit history. Remember, new accounts will lower your score for 6-12 months.

Uncertainty in Financial Markets Could Cause Dramatic Rise in Existing ARMs at Next Adjustment

If you or anyone you know has an Adjustable Rate Mortgage, this is an important point to consider.  Many ARM loans are tied to the London Interbank Offered Rate (LIBOR). In fact, there are six million loans in the United States that use LIBOR to determine the interest rate and as the name suggests, many banks use this rate to lend money to each other.

Today, banks lack confidence that the money they lend will be paid back. In light of what has happened with Lehman Brothers, IndyMac Bank and others, as well as AIG, banks are requiring higher rates on LIBOR to offset the added risk.

The Federal Reserve Left Rates Unchanged however...

The Federal Reserve met last week leaving the target rate unchanged at 2.00% but just like LIBOR the actual rate being charged by banks to each other is closer to 6.00%. This again suggests that those with ARM loans should consider a refinance into historically low fixed rates.

What Happened?

Financial companies have been under attack. IndyMac was the largest bank to falter in twenty years. What brought IndyMac down was their exposure to defaulting loans. This sapped investor confidence and drove down the stock price until they filed for bankruptcy.

Following IndyMac, we saw Fannie Mae, Freddie Mac, Lehman Brothers and Merrill Lynch succumb and were either forced into conservatorship, to close their doors, or to sell. AIG, the world's largest insurance company was also impacted, forced to make a deal with the U.S. government to stay in business.

What You Can Do Now?

Call me to explore you financing options… now just might be the time to convert your ARM into a stable 30 Year Fixed loan.