UNDERSTANDING CREDIT SCORING

Q: How do Banks/Lenders measure my credit? Banks and other Lenders measure credit by evaluating ones FICO score. Q: What does a FICO score measure? The purpose of a FICO score is to assess the credit worthiness of a Borrower. Specifically, it attempts to predict the likelihood that a Borrower will have a 90 day late within 24 months. Q: What aspects of credit are considered in the FICO methodology? 35% of the methodology is based on Payment History. 30% of the methodology is based on Credit Balances. 15% of the methodology is based on Credit History. 10% of the methodology is based on Type of Credit. 10% of the methodology is based on Inquiries. __________________________________________ 100% Q: How does my Payment History affect my score? In considering payment history, the credit bureaus emphasis on: 1. Recent credit transactions Late payments from: The last 6 months 7 to 23 months 24 months or more 2. Frequency of late payments One 30-day late payment in last 24 months One 30-day late payment in last 12 months Three 30-day late payments in last 12 months 3. The Severity of delinquencies 90 days late and/or high % of Credit Balance Three 90-day late payments in last 12 months Foreclosures Bankruptcies

Severely affect FICO score Moderately affect FICO score Slightly affect FICO score

Slightly affects FICO score Moderately affects FICO score Severely affect FICO score

Severely affects FICO score Severely affects FICO score Severely affects FICO score Severely affects FICO score

FACT: Statistics show that people who are frequently 30 days late (3 times) have a high probability of being 90 days late within 24 months. TIP: Pay Bills on time. Use automatic payment if possible.

Compliments of: Sari Sardell Rosenberg

UNDERSTANDING CREDIT SCORING

Q: How do my Credit Balances affect my score? Lenders offer better rates to people who Have and Use credit wisely. Not having a credit account or not using an existing credit account does adversely effects your credit score, as does have too many credit accounts or carrying high balances on your existing credit accounts. Even if you always pay on time!! In evaluating balances, FICO scores are based on cumulative credit balances For example, if you have a: VISA with a high credit limit of ..$ 7,500 Master Card with a high credit limit of ...$ 5,000 Discover with a high credit limit of .$ 3,000 ------------------------------------------------------------------------------------------------Your cumulative available credit is ..$15,500 Cumulative balances over: 30% ($4,650) of your available credit 50% ($7,750) of your available credit 75% ($11,625) of your available credit Single Account balances over; 75% of your credit Unused Accounts

Slightly affect FICO score Moderately affect FICO score Severely affect FICO score Slightly affect FICO score Slightly affect FICO score

FACT: A small balance on a credit card account is better than a zero balance. Leave $1.00 in your account instead of paying in full. FACT: The optimal amount of revolving credit accounts is 3 to 5 depending on income. TIP: Try to have 3 or 4 Credit accounts open (but not more than 5). It takes 6 months to season the account. (I.e. it will not have a positive impact on your score until 6 months after opening). You dont have to use them; just show some activity the month before you apply for a loan. Q: How does Credit History affect my score? Lenders offer better rates to people who have long established credit histories. The length of your credit history is determined by adding the years (or months) that you have had access to each account divided by the number of accounts. For example, if you have a: VISA open for 8 years Master Card open for 5 years Discover open for 3 years American Express open for 4 years -------------------------------------------------------------------------Your Credit History is 5 years old (8+5+3+4 divided by 4=5)
Compliments of: Sari Sardell Rosenberg

UNDERSTANDING CREDIT SCORING

TIP: If you have too many open lines of credit; close the accounts that were established most recently (unless the older cards have lower credit limits). You must call and cancel; cutting up your credit cards does not close the account.

TIP: If your credit history is lacking, ask a parent (uncle of friend) if you can be an authorized user on one of their credit cards- preferably on one that has been open for a long time. Assuming that they are in good credit standing, this will benefit you by showing this account on your credit report as if its yours. Q: How does the type of credit affect my score? Credit used wisely is great; however some types of credit can adversely affect a FICO score. Finance company credit accounts: Co-Signing loans: Severely affect FICO score Slightly affects FICO score

Q: How do inquiries on my credit affect my score? Lenders are wary of people with many inquiries on their credit, this is sometimes a sign that the Borrower is attempting to borrow money or leverage themselves with multiple lines of credit. Inquiries can cost a Borrower 5 to 15 points on a FICO score: Too many inquiries Slightly affect a FICO score Multiple inquiries for the same purpose Do Not affect a FICO score

FACT: Several inquiries within 30 days of the first inquiry for the same purpose (i.e. a home mortgage or a car loan) DO NOT adversely affect a credit score. This was modified in 2001 as to enable consumers to shop around for the best deal without harming their credit. TIP: Lenders do not allow a gift to be used as down payment for a house (unless you are paying at least 5% from your own funds or the down payment is 20% or more); however, that same gift money can be used to pay off any or all credit card debt. Pay off as much debt as you can, even if you have to use an unrecorded loan from a relative. TIP: If you have a special circumstance surrounding a bad debt (i.e. sickness or divorce); The Fair Credit Act of October 1997 entitles you to add a 100 word explanation to your credit report for anyone accessing your report to see.

Compliments of: Sari Sardell Rosenberg

OPTIMIZE YOUR FICO SCORE

To optimize your FICO score try to do as many of the items below as possible: Pay Bills on time. Use automatic payment if possible. Have 3 or 4 Credit accounts open (but not more than 5) o You do not have to use them; just show some activity the month before you apply for a loan. o Get your cumulative balance under 30% of your cumulative credit the month before you apply for your loan (keep it under 50% unit you lock your rate). o If it is not possible to pay down the balance; as the credit card company to raise your credit limit. o Do not let any of your accounts show a zero (0) balance- if possible. o Do not let any of your accounts be delinquent. Do not accept any loan where you do not make payments until the following year (or for several months). Do not co-sign any loans until you have closed. Do not apply for more lines of credit. Get an authorized user card from a parents credit card account.) use it once every two or three months). If you are leasing an apartment, always pay your rent on time. Banks will look closely at the rent history of first time home buyers.
Sari Sardell Rosenberg
Senior Vice President of Mortgage Lending
sari@guaranteedrate.com www.guaranteedrate.com/sarirosenberg o: 212.318.9419 c: 917.476.9500 fax: 646 383.9474 750 Lexington Ave 4th Floor, New York, NY 10022 NMLS ID: 41650 My vCard- Facebook- Twitter- LinkedIn- A+ BBB Rating- Partner Xchange
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