Realty ONE Group
Realty ONE Group
Jeff Rochford, Realty ONE GroupPhone: (602) 369-7882
Email: [email protected]

It’s a Balancing Act: Credit and Debt

by Jeff Rochford 05/17/2020

Image by David Pereiras from Shutterstock

Your FICO score is a key factor used to determine if you qualify for a mortgage. The Fair Isaac Corporation (FICO) is the creator of the most common credit score used by home loan providers. The algorithm used to create your score is a closely-guarded industry secret. But in general, it factors in your payment history, debt burden, length of credit history, and recent applications for credit. Your FICO score is powerful but there are things it cannot account for.

It does not indicate how much you can afford.

It does not reveal how much you have saved up for a down payment.

It does not understand your ability to budget.

It does not display your current bank account balances.

What does it do?

Your FICO score tells you (and your potential lender) how you have handled credit over the length of your credit history. Scores range from 300 (poor) to 850 (excellent). The primary factors that can hurt your credit score are late-payments and the debt-to-credit ratio.

Late Payments

Make your payments on-time every month especially if you are hoping to secure a mortgage. The more on-time payments you have the better your score will be. In some cases, on-time payments can dilute the impact of late-payments in your credit history. Newer incidences can be more detrimental to your score than older late-payments. Payments that are received 60, 90, or 120 days late count more against you than those that are late by over 30 days.

Credit Utilization

The total amount you owe is a consideration but the relationship between how much you owe and the credit available to you weighs more heavily when it comes to determining your FICO score. Another term for this is your credit utilization. Your debt-to-credit ratio is a measure of how much of your available credit you are using within a 30-day window. The higher the ratio of debt compared to available credit, the more likely you are to have a lower FICO score.

For instance, let’s say you and your partner both owe $1000 on credit cards. Your available credit is $1500, making your credit utilization two-thirds or 66 percent of your available credit. Your partner’s available credit is $4000, making their credit utilization 25 percent of their available credit. If all other factors are equal, your partner’s FICO score will appear higher. 

Ask your real estate professional for recommended financial resources in your area.

About the Author
Author

Jeff Rochford

I am a native Phoenician and with my experience in real estate as well as my intimate knowledge of the local area, I work extensively to help buyers and sellers meet their real estate goals. For buyers, as a Phoenix area native, I have extensive knowledge of the metro Phoenix area from Scottsdale/Carefree in the northeast to Glendale/Peoria in the northwest to Queen Creek in the southeast to Goodyear in the southwest. I will search until I find the property that best fits your lifestyle. I will then help negotiate the best possible deal. I also have extensive experience with buyers who wish to purchase new homes. If you are interested in buying a new home you have the right to be represented by your own agent so don’t miss this opportunity speak to me before visiting the builder’s models. And best of all there is no additional cost to you. For those who have a home to sell, I will work with you to design a marketing plan that works best in this dynamic market. In addition to the traditional ways of marketing your home, I can expose your home on the internet to thousands of buyers. These are buyers from all across the country and around the world that can contact me looking to buy in the Phoenix area. Nothing gives me more joy than helping my clients find and buy that perfect home. I would like to be Your Realtor. If you are looking to buy or sell a home or would just like more information, please call me at (602) 369-7882 or just email me at [email protected] Thanks again for choosing MyPlaceInTheDesert.com ‘For Your Place In The Desert’ for Phoenix real estate.