how much improvement?

Guest 0.10 Dollars($)

We are getting ready to buy our first house pretty soon. I checked my FICO score and it was 625. I don't have a lot of credit on my report (2 credit cards, a paid off car loan and an open car loan) I pay everything on time, but have high balances in the cards. I will be paying off one of them this week, and half of the other. How much improvement will I see as a result of this? What else can I do to raise my score? We have been renting our current home for 5 years, if the owner reported that we have paid everything on time during that period, would it help?

My husband just took a new job an hour and a half away, so moving is not an option. Thanks for your help.

gmakerley · Posted: Mon Jun 23, 2008 11:03 am Post subject:

Mom, i think your best bet is likely to be an FHA loan. You'll find that interest rates are quite comparable with conventional loan rates, and a score of 625 won't cost you as it would with a conventional.

How much your score would improve in a brief period of time is hard to calculate as there are other variables at play, but that's not really a drawback to your plans to purchase soon. As for other methods to improve the score, you're on the right track - balances on credit cards in relation to credit limits is a big deal. I don't think you need to establish any new credit at this time - just keep paying on time as you've been, and keep your balances as low as possible.

A reference from your landlord is always beneficial, though it may only be window dressing for a potential lender. Not only that, though, your payment record would be cause for alarm if it were not as good as it is.

In a situation such as yours, with minimal accounts open, time is your best friend in terms of boosting your score. The more time you have the accounts and keep paying on time, the more you'll reap the benefits of a higher score.

rebeccafrech · Joined: 23 Jun 2008 Posts: 2 1.63 Dollars($)

Thanks, George.

We try very hard to live by the principle "If you can't pay cash, then you can't afford it." The credit cards were used to pay for medical expenses when our daughter got sick earlier this year. (She's better now) I just never thought that my own frugality and aversion to financing would cause us difficulty, or that we would be penalized for trying to live the way our grandparents always did by only buying what we could easily afford.

rebeccafrech · Joined: 23 Jun 2008 Posts: 2 1.63 Dollars($)

for some reason it just gave my real name instead of my nom de plum. it's still me just a different moniker

gmakerley · Posted: Mon Jun 23, 2008 11:15 am Post subject:

you're not necessarily penalized other than that credit scoring is the way business is conducted these days. i agree with your stance on handling your finances in that fashion. i think the major factor in the score being as low as it is would be your minimal history of credit usage. as i noted, time is on your side; payments on whatever you have currently will bring an increase in the score.

jbarto65 · Joined: 04 Nov 2007 Posts: 626 -0.11 Dollars($)

I agree, it sounds as if you are off to a good start, you will be able to find a descent loan through fha, do you have all the information that you need to check one of these loans out?

Guest 0.10 Dollars($)

no, I don't. What do I need to do?

Niicss · Posted: Fri Jun 27, 2008 5:57 am Post subject:

Welcome the mom.

You can get a FHA loan as stated above. To know how much can you afford you can check it out at http://www.mortgagefit.com/calculators/howmuch-afford.html

Hope it helps.

brian1 · Posted: Fri Jun 27, 2008 6:23 pm Post subject:

FHA requires a lower debt to income. All debt including home should nat be more than 43% of your monthly gross income. If that is the case your hsould be fine.

Good Luck
Brian

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