Learn the four credit types & how they affect you

There is nothing more frustrating than wanting to buy a home and finding out your credit isn't where it needs to be. Comments such as 'your scores are too low or 'you have too many collections' are not exactly helpful, especially when there is no follow-up dialogue on how to correct these matters.

If you've been denied for a home loan due to credit and you're feeling overwhelmed, there's no need to worry because..,

??All credit can be repaired.?

And better yet, most people who think they have bad credit don't; they just have an imbalance of credit accounts.

The path to homeownership starts with preparing your credit for your future loan application. But, to get control of your credit, you have to understand it. Therefore, it's essential that you know the four main types of credit accounts and how they affect your credit profile.

Here are the 4 main types of credit accounts:

Collections

Collections are accounts you haven't paid, and the original creditor has sold your debt to a collection company.

What's most damaging about collection accounts is how they get reported to your credit profile. Collection companies submit your collection debt every month as if it were a brand-new account. Because of this practice, plenty of people who should have a 700 credit score instead have credit scores in the 500 range, thanks to one or two listed collections.

Charge-Offs

These are accounts that you haven't paid. The original creditor gave up on you; then closed and charged off your account. The account is no longer available to use, but the creditor keeps reporting the account as delinquent each month.

It's easy to think that a closed account can't hurt you, but that is not the case. A closed and charged-off account reporting negative information every month damages your credit just as quickly as an open account can.

Installment Loans

These accounts are car payments and loans with a fixed monthly payment.

The credit bureaus rate you on installment loans based on timely payments and the length of the payment history. So the longer you pay an installment loan on time, the higher your score will go.

Revolving Accounts

These accounts are credit cards. Each month's payment varies based on the current balance you have on the card.

With revolving debt, two factors apply - payment history and credit utilization.

In addition to on-time payments, the percentage of the credit limit you are using also comes into play when generating your credit score. The higher your balance is the lower your score. For instance, if you have a $1000 credit limit and keep your balance at around $900, your score will suffer. This decrease in credit scores happens because all of your available credit is used, and therefore you are considered a risk.

As a general rule, if you can keep your credit card balances at 30% or less than your available limit and pay the bill on time, you'll see the benefits in your credit scores.

As part of step one of the home loan process, we review your credit report and prepare a step-by-step plan to help you build your credit score and profile. Together we will address the 4 types of accounts listed above and take steps to rebalance your credit profile and increase your credit score. By the time we're finished, you'll have not only a pretty credit report but also a credit score that's much higher than you have now!

?Contact Havana or Wendy when you're ready to get started!?

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Contact us for more information: ???321.794.5626 | [email protected]

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