Your Credit Score and Bank Account

90% of the largest U.S. banks use FICO scores. When you buy Real Estate, you will most likely seek a loan from a lending institution. Your FICO score is your credit rating. It's basically your Credit History Report Card and it follows you wherever you go.

On the low end of the FICO score range is 300 (bad credit falls between 300 - 600). On the high end, 850 would be perfect (excellent credit falls between 750 - 850). Average to good credit falls between 600 -750. Banks look at your FICO score to determine whether you are credit worthy. If your credit score is too low, you will be most likely declined for the loan. If your FICO score is high, you will not only qualify for the loan but will be rewarded with a lower interest rate. Lower interest rates can save you tens of thousands of dollars over the course of a loan.

FICO scores are calculated based on your rating in five general categories:
Payment history - 35%
Amounts owed - 30%
Length of credit history - 15%
New credit - 10%
Types of credit used - 10%

Lenders will give you preferred loan terms if your credit score is high. Good credit may qualify you for a low down payment, and if your score is in the 800's, they may not require a Down Payment at all. You can actually get a loan with NO INCOME VERIFICATION if your credit is outstanding. Excellent credit is the most powerful tool you'll have in the Real Estate game.

Have poor credit?......all is not lost, just fewer options. Sometimes, your credit score doesn't give an accurate picture of how responsible you are. Maybe you went through a divorce, and the Ex-spouse was the irresponsible one. Maybe you went through a health crisis, or a death in the family. Banks know bad things happen to good people. It is very important that you continue to pay your current bills on time and re-build your credit history if you want to be a success in Real Estate.

Money in the bank- If you're a good saver, you may offset your credit challenges with a substantial down payment. Lenders are primarily concerned with one thing when they loan you money........"Is the home worth more than we are lending you". If the answer is "yes", you have a good shot at securing a loan. People with average to poor credit, can expect to pay 20% of the purchase price. This gives the Lender a comfortable equity position in your property should you default on the loan. The more money you can put away in the bank each month, the greater your chances are to meet the down payment you'll have to pay to offset your less than perfect credit.