Rent Out Pacing Income

Household incomes have not keeping pace with rents.

In today’s markets more earnings are required for rent than in years past—now 29.1 percent of the median monthly income, versus the 25.8 percent needed prior to the recession, according to an analysis recently released by Zillow. The difference equals $1,957 more than if the share had stayed the same.

Homeowners, however, are not allocating more of their income to a mortgage, the analysis shows. A mortgage accounts for 15.4 percent of the median monthly income now, versus 21 percent prior to the recession—$3,289 in savings.

The discrepancy has implications for renters, says Dr. Svenja Gudell, chief economist at Zillow.

“In most markets, current renters are at a disadvantage compared to years past because paying the rent takes up a much larger share of their income than it did before,” Gudell says. “For many people, that can mean less cash to put toward paying off student debt, building an emergency fund, or saving for retirement. For those hoping to buy a home, it could be a significant part of their down payment. For parents, it could mean additional childcare or a family vacation. This is another example of how much worse rent affordability has gotten.”

By Suzanne De Vita

How The FICO Score Counts Inquiries

A search for new credit can mean greater credit risk, this is why the FICO Score counts inquiries (requests a creditor makes for your credit report or score when you apply for credit). FICO Scores consider inquiries very carefully because not all inquiries are related to credit risk.

Inquiries Usually Have A Small Impact. For most people, one additional credit inquiry take less than Five points off their FICO Score. However, inquiries can have a greater impact if you have small number of accounts or a short credit history. Large numbers of inquiries also mean greater risk. For example, people with Six or more inquiries on their credit reports can be up to Eight times more likely to declare bankruptcy than people with no inquiries on their reports.

Many Kinds Of Inquiries Are Completely Ignored. Your FICO Score does not consider an inquiry when you order your credit report or score from a credit reporting agency or another company authorized to provide this information to consumers. Also, the FICO Score does not count inquiries a lender has made for your credit report or score in order to make you a “pre-approved” credit offer or to review your account with them, even though you may see these inquiries on your credit report. Inquiries marked as coming from employers are also not counted.

The Score Allows For “Rate Shopping.” If you are looking for a mortgage, student loan or an auto loan, you may want to check with several lenders to find the best rate. This can cause multiple lenders to request your credit report, even though you are only looking for one loan. To compensate for this, FICO Scores distinguish between a search for a single loan and a search for many new lines of credit, in part by the time span over which inquiries occur. Shopping for a mortgage loan, student loan or an auto loan over a short period of time, say 20-days, will minimize the effect of rate shopping your FICO Score.

 

Should I Close Old Accounts To Raise My Score?

NO. In fact it might actually lower your FICO Score. Firstly, any late payments associated with old accounts will not disappear from your credit report if you close the account. Secondly, long established accounts show you have a long history of managing credit, which is a good thing. Thirdly, having available credit that you do not use does not lower your FICO Score. You may have reasons other than your FICO Score to close old credit card accounts which you do not use but closing accounts to attain a better FICO Score is not advised.

What A FICO Score Consider – Part 2

A FICO Score takes into consideration Five main categories of information, not just One or Two. No One piece of information or factor alone will determine your FICO Score.

Five Main Categories Considered By FICO Score

3) Length Of History – How Established Is Yours?

Approximately 15% of your FICO Score is based on this category.

In general, a longer history will increase your FICO Score. However, even people who have not been using credit long may get high FICO Scores, depending on how the rest of their credit report looks. Your FICO Score takes into account.

How Long Your Credit Accounts Have Been Established, In General. Your FICO Score considers the age of your oldest account, the age of your newest account and an average age of all your accounts.

How Long Specific Accounts Have Been Established.

How Long It Has Been Since Certain Accounts Were Used.

4) New Credit – Are You Taking On More Debt?

Approximately 10% of your FICO Score is based on this category.

In this day and age people tend to have more and to shop for credit, predominantly via the internet and sometimes through other channels more frequently than ever. FICO Scores reflect this reality. However, research shows that opening several credit accounts in a short period of time does tend to represent greater risk, specially for those who do not have a long established credit history.

Multiple credit requests also represent greater credit risk. FICO Scores have a method of distinguishing between a search for many new credit accounts and rate shopping for the best mortgage or auto loan. Your FICO Score takes this into account.

How Many New Accounts You Have. Your FICO Score looks at how many new accounts you have by type of account. It also may look at how many look at how many of your accounts are new accounts.

How Long It Has Been Since You Opened A New Account. Your FICO Score may consider this information for specific types of accounts.

How Many Recent Requests For Credit You Have Made, As Indicated By Inquiries To The Credit Reporting Agencies. Inquiries remain on your credit report for Two Years, Although only inquiries from the past 12 Months are considered. FICO Scores have been carefully engineered to count only those inquiries which truly impact credit risk.

Length Of Time Since Credit Report Inquiries Were Made By Lenders.

Whether You Have Good Recent Credit History Following Past Payment Problems. Re-establishing credit and making payments on time after a period of late payment behavior will help raise a FICO Score over time.

5) Types Of Credit In Use

Approximately 10% of your FICO Score is based on this category.

The score will consider your mix of credit, retail accounts, installment loans, finance company accounts and mortgage loans. It is not necessary to have one of each and it is not a good idea to open credit accounts you do not intend to use. The credit mix usually will not be a key factor in determining your FICO Score but it will be more important if your credit report does not have a lot of other information on which to base a score. Your FICO Score takes into account.

What Kinds Of Credit Accounts You Have. Do you have experience with both revolving and installment type accounts or has your credit experience been limited to only One type?

How Many Of Each. Your FICO Score also looks at the total number of accounts you have. For different credit profiles, how many is too many will vary depending on your overall credit picture.

FICO Tips

If You Have Been Managing Credit For A Short Time, Do Not Open Lots Of New Accounts Too Quickly. New accounts will lower your average account age, which will have a large effect on your FICO Score if you do not have a lot of other credit information. Even if you have used credit for a long time, opening a new account can still lower your FICO Score.

Do Your Rate Shopping For A Given Auto, Student Or Mortgage Loan Within A Short Time Period. FICO Scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which these inquiries occur.

Beware Of Opening New Accounts You Do Not Need. Opening new accounts can lower your FICO Score in the short term.

Re-Establish Your Credit History If Your Have Had Problems. Opening new accounts responsibly and paying them off on time will raise your FICO Score in the long term.

NOTE That It Is Fine To Request And Check Your Own Credit Report And FICO Score. This will not affect your FICO Score, as long as you order your credit report directly from the credit reporting agency or through an organization authorized to provide credit reports to consumers.

Apply For And Open New Credit Accounts Only As Needed. Do not open accounts just to have a better credit mix. This probably will not raise your score.

Have Credit Cards BUT Manage Them Responsibly. In general, having credit cards and installment loans (and making timely payments) will raise your FICO Score. People with no credit cards, for example, tend to be higher risk than those who have managed credit cards responsibly.

NOTE, Closing An Account Does Not Make It Go Away. A closed account will still show up on your credit report and it’s history will be taken into account by your FICO Score.

What A FICO Score Consider

A FICO Score takes into consideration Five main categories of information, not just One or Two. No One piece of information or factor alone will determine your FICO Score.

The importance of any factor depends on the overall information in your credit report. For some people, a given factor may be more important than for someone else with a different credit history. Additionally, as the information in your credit report changes, so does the importance of any factor in determining your score.

For this reason, it is impossible to measure the exact impact of any single factor without looking at your entire report.

Your FICO Score only looks at credit information in your credit report whereas Lenders often look at other additional data when making credit decision, such as income, length of employment, type of credit being requested, etc.

The FICO Score considers negative and positive information in your credit report. Late payments will lower your score but establishing or re-establishing a good track record of on-time payments will raise your score.

Getting A Better Score

It is important to note that raising your FICO Score is a little like getting into shape, it takes time and there is no quick fix. In fact, quick-fix efforts can backfire. The best advice is to manage credit responsibly over time.

Pay your bills on time. Delinquent payments and collection can have a major negative impact on your credit score.

If you have missed payments, get current and stay current. The longer you pay your bills on time, the better your credit score.

Beware that paying off a collection account or closing an account which you previously missed a payment will not remove it from your credit report. Your FICO Score will still consider this information, because it reflects your past credit pattern.

If you are having trouble making ends meet, contact your creditor(s) or see a legitimate credit counselor. This does not improve your credit score immediately but if you can begin to manage your credit and pay on time, your score should improve over time. Seeking assistance from a legitimate credit counselor will not hurt your FICO Score.

Five Main Categories Considered By FICO Score

1) Payment History – What Is Your Track Record?

Approximately 35% of your FICO Score is based on this category. The first thing any Lender would consider is whether you have paid past credit accounts on time. This is also one of the most important factors in a FICO Score.

Late payments are not an automatic ‘score-killer.’ An overall good credit picture can outweigh One or Two instances of late payment. Having no late payments in your credit report does not mean a perfect score, some 60% to 65% of credit reports show no late payments at all. This data is just One piece of information taken into consideration for calculating your FICO Score.

Payment information on many types of accounts. These will include credit cards, store cards, installment loans, finance company accounts and mortgage loans.

Public Records And Collection Items – Bankruptcies, Foreclosures, Short-Sales, Suits, Wage Garnishments, Liens And Judgments. These are considered quite serious, although older items and small amounts will count less than recent items or larger amounts. Bankruptcies stay on your report for 7 – 10 years, depending on the type.

Details On Late Or Missed Payments – Delinquencies, Public Record And Collection Items. The FICO Score considers how late they were, the amount owed, how recently they occurred as well as how many times. A 60-day late payment is NOT as significant as a 90-day late payment, however, freshness and frequency also count. A 60-day late payment made just a month ago will count more than a 90-day late payment made Three years ago.

How Many Accounts Show No Late Payments. A good track record on most of your credit accounts will increase your FICO Score.

2) Amounts Owed – How Much Is Too Much?

Approximately 30% of your FICO Score is based on this category. Owing money on credit accounts does not make you a high-risk borrower with a low FICO Score. On the other hand, when a high percentage of a person’s available line of credit is already been used, this can indicate that person being over-extended and is more likely to make late payments or none at all.

Amounts Owed On All Accounts. Even if you pay off your credit cards in full every month, your credit report may show a balance on those cards. The total balance on your last statement is generally the amount shown on your credit report.

The Amounts Owed On All Accounts And On Different Types Of Accounts. In Addition to the overall amount you owe, your FICO Score considers the amount you owe on specific types of accounts.

Whether You Are Showing A Balance On Certain Types Of Accounts. In some cases, having a very small balance without missing a payment shows you have managed credit responsibly, it may be slightly better than carrying no balance at all. Closing unused credit card accounts that show zero balance and are in good standing will NOT raise your FICO Score.

How Many Accounts Have Balances. A large number can indicate higher risk of over-extension.

How Much Of The Total Credit Line Is Being Used On Credit Cards And Other “Revolving Credit” Accounts. Someone closer to “maxing out” on many credit cards may have trouble making payments in the future.

How Much Of Installment Loan Accounts Are Still Owed Compared With The Original Loan Amount. If you borrowed $10,000 to buy a car and $2,000 has been paid back, you owe, with interest, more than 80% of the original loan.

Paying down installment loans is a good sign that you are able and willing to manage and repay debt.

FICO Tips

Keep Balances Low On Credit Cards And Other Revolving Credit. High outstanding debt can lower your FICO Score.

Pay Off Debts NOT Move Them Around. The most effective way to improve your FICO Score is by paying down your revolving credit.

Do Not Close Unused Lines Of Credit As Short-Term Strategy To Raise Your FICO Score. Owing the same amount but having fewer open accounts may lower your FICO Score. By closing unused accounts you are lowering your overall available credit limit which in turn increases your overall utilization ratio.

Do Not Open A Number Of Unnecessary Lines Of Credit Just To Increase Your Available Limit. This approach could backfire and actually lower your FICO Score.

Avoid Credit Repair Agencies Who Charge A Fee To Improve Your FICO Score By Removing Negative But Accurate Information From Your Score. No one can force credit reporting agencies or Lenders to remove accurate information from a credit report. Removal of accurate information is ONLY temporary because it will reappear later. Only time will render accurate but negative information irrelevant.

Are FICO Scores The Only Risk Scores?

Understanding Your FICO Score

NO. While FICO Scores are the most commonly used credit risk scores in the United States, Lenders may choose other scores to help evaluate your credit risk. These include:

Application Risk Scores

Many Lenders use scoring systems which include FICO scores but they also consider information contained in your credit application.

Consumer Risk Scores

A Lender may use these scores to make credit decisions on its current customers. Also called ‘behavior scores’, these scores generally consider the FICO scores along with information on how you have paid that Lender in the past.

Other Credit Scores

These scores may evaluate your credit report differently compared to FICO scores and in some cases, a higher score may mean more risk rather than less risk as with FICO scores. When purchasing a credit score for yourself, it is recommended getting your FICO score due to the fact this is the score most creditors use when making credit decisions.

You Have THREE FICO Scores

In general, when people talk about ‘your score’, they are referring to your current FICO score. The fact is there are Three different FICO scores available at any given time, One at each of the Three main credit reporting bureaus and they all have different names. Equifax calls their score ‘BEACON‘, Experian named theirs ‘Experian/FICO Risk Model‘ and Transunion has their as ‘FICO Risk Score, Classic‘. The FICO score from each agency considers only data in your credit report at that bureau. All Three scores are developed using the same methods and rigorous testing.

Will Your Scores Be Different?

The FICO score ranges from 300 to 850 and are made to be as consistent as possible across all Three reporting agencies.

Each of the Three reporting agencies most likely has different information about you, this leads to your scores being different. If your information is identical at all Three agencies then your FICO scores should be closely matched.

Since Lenders are likely to review your score and credit report from any of the main agencies, it is good practice to check your credit report from all Three bureaus to ensure their accuracy.

How FICO Scores Work

Understanding Your FICO Score 

How FICO Scores Work 

FICO Scores are the best known and mot widely used credit scores. The majority of credit scores used in the US and Canada are produced from software developed by FICO. These scores are provided to Lenders by the three prominent credit reporting bureaus.                  

When a Lender orders your credit report, they can also buy your FICO score that is based on information in that report. This score is calculated by a mathematical equation which evaluates many types of data from your credit report at that agency. By comparing this information to the patterns of Hundreds of Thousands of past credit reports, the FICO system estimates your level of future credit risk (this is the likelihood of paying back borrowed money). 

In order for a FICO score to be calculated on your credit report, there MUST be enough data (enough recent information) on which to base a score. Generally, this means you must have at least one account that has been open for Six months or longer and at least One account that has been reported to the credit reporting agency within the past Six months. 

FICO cores provide a reliable guide to future risk based solely on credit report data. These scores have a 300 to 850 range. The higher your score, the lower your risk of default (not paying back). However, no score says whether a specific individual will be a “good” or “bad” customer/client. While many Lenders use FICO scores to help them make lending decisions, each Lender has it’s own strategy and guidelines, including the level of risk it finds acceptable for a given credit product. There is no single cut-off score used by all Lenders. 

 

Are FICO Scores Unfair To Minorities?

NO. FICO scores do NOT consider your gender, race , nationality or marital status. In fact the Equal Credit Opportunity Act forbids Lenders from considering these types of data in their credit decision making process. 

Independent research has shown that credit scoring is not unfair to minorities or people with little credit history. Scoring has proven to be an accurate and consistent measure of repayment for all people who have some credit history. In other words, at any given score all applicants are equally likely to repay as agreed.

What Is In Your Credit Report

Understanding Your FICO Score

What Is In Your Credit Report? 

Although each credit reporting agency formats and reports information differently, all credit reports contain identical categories of information. 

 

Personal Information

Your name, address, Social Security Number, date of birth and employment information are all used to identify you. 

These data are not used in calculating your FICO score. Updates to these information are obtained from your creditors. 

 

Accounts

This information relating to your credit accounts. Most Lenders report on each you have established with them. 

Generally, they report the type of account, e.g. bankcard, auto loan, mortgage, etc, including the date account was opened (or how long the account has been in your name), your credit limit, highest historical balance, loan amount (if applicable), current balance and payment history (such as minimum payment, late payments, missed payments). 

 

Inquiries

When you apply for a line of credit, you authorize the Lender to obtain a copy of your credit report. This is how most inquiries appear on your credit report. Other inquiries appear due to financial institutions checking your worthiness prior to making you a credit offer by mail. 

This section contains a list of Lenders who have accessed your credit report within the last Two years, categorized as “voluntary” – inquiries initiated by your credit application and “involuntary” – pre-approval credit offer inquiries. 

 

Negative Items

Lenders report delinquency information when you have been late or missed a payment. Overdue debts information from collection agencies are also collected and logged as well as public record information from local and county courts. 

Public record data includes bankruptcies, foreclosures, short-sales, tax liens, wage garnishments, legal suits and judgments.

Your Credit Report – The Basis Of Your FICO Score

The credit reporting agencies maintain information on millions of people and businesses. Lenders looking to make credit decisions buy credit reports on their potential clients from the credit reporting agencies. 

Your credit report details your credit history in the way it has been reported to the credit agency by various creditors who have extended credit to you. This report lists the types of credit you use, lengths of time your accounts have been open and whether you have paid your bills on time. The amount of credit used is also shown as well as any applications for more lines of credit. Through the credit report, Lenders get a broader view of your credit history and usage than through other data source, such as a bank’s own customer data. 

Your credit report contains many pieces of information which reveal several aspects of your borrowing activities. 

The ability to quickly, fairly and consistently analyze and consider all this information, including the relationships between different types of information is what makes credit scoring and reporting very useful. 

How Fast Does My FICO Score Change?

Your FICO score is based on a snapshot of the information in your credit report at a point in time. 

For this reason your FICO score can and does change whenever your credit report changes, although your score might not change a lot from one month to the next. 

While a bankruptcy or late payments can (and will most probably) lower your FICO score fast, improving your FICO score takes time. It is recommended you check your FICO score 6-12 months prior to applying for a big loan, such as mortgage, this will give you to take action if needed. 

If you are actively working to improve your FICO score then you should check your score on a quarterly or monthly basis to review any changes then take necessary action.

Understanding Your FICO Score

 How FICO Scores Help You 

FICO scores give Lenders a fast, objective estimate of your credit risk. Before the use of scoring, the credit granting process was usually slow, inconsistent and unfairly biased. Credit scores, especially FICO scores (the most widely used) have made possible biog improvements in the credit process. 

Due to FICO scores: 

People Can Get Loans Faster. FICO scores are available almost instantly, helping Lenders speed up loan approvals. This in turn means that when you apply for credit the answer is much quicker. Many credit decisions are made within minutes today or in seconds online. Mortgage applications are now being processed and approved in hours rather than weeks for borrowers with GOOD to EXCELLENT credit score.  

Credit Decisions Are More Consistent And Fair. Lenders are now focused only on facts related to credit risk instead of their personal opinions or biases when using FICO scores. Factors such as Gender, Rage, Religion, Nationality or Marital Status are NOT considered by FICO scores. 

Old Credit Problems Count For Less. For borrowers who were a bad credit risk in the past, FICO scores does not allow that haunt them forever. The impact of past credit problems on your FICO score fades over time as good, recent payment patterns show up on your credit profile. FICO scores weigh any credit problems against the positive information which says you are managing your credit responsibilities well. 

Does My FICO Score Alone Determine Whether I Get Credit?

NO. Most Lenders take into account a number of factors in making a credit decision, including your FICO score. 

Available information, such as your debt to income ratio (current financial obligations relative to your earnings), employment history and credit history may be used by Lenders. 

Depending on the type of credit, the Lender’s final decision would be based on their review of your FICO score and credit history as well as their specific underwriting criteria in determining whether to approve or decline the application. 

In a mortgage application, sometimes Lenders can give a conditional approval on the basis of the said conditions being met/removed before a final, unconditional approval can be granted.

Understanding Your FICO Score

How FICO Scores Help You 

FICO scores give Lenders a fast, objective estimate of your credit risk. Before the use of scoring, the credit granting process was usually slow, inconsistent and unfairly biased. Credit scores, especially FICO scores (the most widely used) have made possible biog improvements in the credit process. 

Due to FICO scores: 

People Can Get Loans Faster. FICO scores are available almost instantly, helping Lenders speed up loan approvals. This in turn means that when you apply for credit the answer is much quicker. Many credit decisions are made within minutes today or in seconds online. Mortgage applications are now being processed and approved in hours rather than weeks for borrowers with GOOD to EXCELLENT credit score.  

Credit Decisions Are More Consistent And Fair. Lenders are now focused only on facts related to credit risk instead of their personal opinions or biases when using FICO scores. Factors such as Gender, Rage, Religion, Nationality or Marital Status are NOT considered by FICO scores. 

Old Credit Problems Count For Less. For borrowers who were a bad credit risk in the past, FICO scores does not allow that haunt them forever. The impact of past credit problems on your FICO score fades over time as good, recent payment patterns show up on your credit profile. FICO scores weigh any credit problems against the positive information which says you are managing your credit responsibilities well. 

Does My FICO Score Alone Determine Whether I Get Credit?

NO. Most Lenders take into account a number of factors in making a credit decision, including your FICO score. 

Available information, such as your debt to income ratio (current financial obligations relative to your earnings), employment history and credit history may be used by Lenders. 

Depending on the type of credit, the Lender’s final decision would be based on their review of your FICO score and credit history as well as their specific underwriting criteria in determining whether to approve or decline the application. 

In a mortgage application, sometimes Lenders can give a conditional approval on the basis of the said conditions being met/removed before a final, unconditional approval can be granted.