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HomeBlog BlogLow Credit Score? Then Kiss That Dream of Home Ownership Goodbye
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Low Credit Score? Then Kiss That Dream of Home Ownership Goodbye

June 21, 2016 by National Debt Relief

couple discussing financesWhen you were 13 or 14 years old you probably dreamed of owing a car. Having a car meant freedom — cruising with your friends, hitting the open road or just being able to come and go pretty much as you pleased. You may have even been able to picture your dream car.

Now that you’re an adult and if you’re typical your biggest dream now is homeownership. The idea of owning your own home has become such an ingrained part of American society that it’s often referred to as the American dream. Homeownership comes with some of the same perks as having your own car. It’s a form of freedom in that you’d no longer be at the mercy of a landlord. It also means security because no one can kick you out of your own home – assuming you continue to make your mortgage payments. Owning your own home puts you in charge. No one can tell you that you can’t paint your kitchen or whether you can rip up that old, dingy shag carpeting. The decision is yours to make and yours along.

When you rent its kind of like pouring money down the drain. You pay your rent each month in return for which you get to stay in the house or apartment but you get nothing else in return. In comparison, every time you make a mortgage payment you build equity, meaning that you literally own more of your home. In addition, that house is most likely to increase in value over the years, which is why a mortgage is often called “good debt”. Most homeowners are able to write off the interest they pay on their mortgage which is yet another benefit of home ownership versus renting.

What’s your credit score?

We hope you already know your credit score because that little three-digit number is about to become critical. The most widely used credit scores are those generated by FICO. They range from a low of 300 to a high of 850. Most lenders view credit scores in ranges as follows:

Excellent Credit: 781 – 850
Good Credit: 661-780
Fair Credit: 601-660
Poor Credit: 501-600
Bad Credit: below 500

Here’s the problem in today’s mortgage marketplace. According to the Federal Reserve Bank of New York’s consumer credit panel about 50% of the $389 billion in mortgages went to people that had an Equifax Risk Score of 760 or higher. Equifax scores are a bit different then FICA scores in that they range from 280 to 850. If you count the number of loans that were given, rather than dollars, then 51% of the mortgages went to people with the Risk Score of 780 or higher.

What happened to the others

According to this same consumer credit panel, borrowers who had a credit score ranging from 620 to 659 received just 4.6% of the dollar volume of mortgages granted in that quarter. If you compare this with the same quarter in 2004 the 760-or-higher group received 23% of the mortgages and those with credit scores of 620 to 659 received 9.7%. In other words, since 2004 the number of borrowers with below-prime credit that got mortgages decreased by nearly 50%.

Too risk adverse?

As noted above, many middle-income families use homeownership as a way to build equity. However, in the first quarter of this year Black homeownership rates fell 41.5%, which was the lowest since 1995 and the rates for Americans overall have been below 64% for the past five quarters. All of this data raises questions about whether banks and regulators have become too risk adverse. The company CoreLogic, which provides property data, has reported that mortgage applications from borrowers with credit scores below 640 fell to 6% last year from 29% just 10 years ago. In other words, people with low credit scores aren’t even applying for mortgages.

What this means to you

The sad fact is that if you have a credit score of less than 680 you can just about kiss that dream of home ownership goodbye as it’s unlikely you’ll be able to get a mortgage – at least not until you do something about your credit score. Unfortunately, what you can do is very limited. No one knows exactly what formulas FICO or Equifax use to calculate credit scores but what is known is that your score is based on five components. They are:

Payment history: 35%
Debt amounts: 30%
Length of credit history: 15%
Credit mix: 10%
New credit: 10%

credit history being erasedUnfortunately, there is nothing you can do about your payment history nor can you do anything about your length of credit history. The one area where you could do something that would improve your low credit score is your debt amounts, which is a shorthand way of saying the amount of debt you have versus the total amount of credit you have available. This is sometimes called the debt-to-credit ratio and is calculated by dividing your total credit into the amount you’ve used. For example, if you have $20,000 in total credit and had used up $10,000, your debt-to-credit ratio would be 50% or much too high. If you calculate your ratio and find that it’s above 30% this is an area where you could improve your score, simply by paying down some of your debt – until your ratio falls below 30%.

If you’d like to know the fastest way to improve your debt-to-credit ratio fast just watch this video.

A second area where you could do something to improve your low credit score is in your Credit mix or the different types of credit you have. If you have several credit cards, two or more other revolving lines of credit and, say, an auto loan that would be a good Credit mix. On the other hand, if you have just a couple of credit cards you might think of applying for some other different forms of credit to improve your Mix but, of course, you will need to be very careful as to how you use that new credit so that you don’t damage your debt-to-credit ratio.

Keep working on that low credit score

If you do have a low credit score but still harbor that American dream of owning your own home, you’ll just have to keep working to Increase your credit score. It will take time and may not be easy but the payoff at the end will be pretty terrific – fulfilling that American dream of owning your own home.

 

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Moderate National Debt Relief Caller: Charlotte Transcribed WE 1/17/2021 Charlotte: I am calling because I wanted to ask a few quick questions about your experience with National Debt Relief [unclear 0:00:27]. JOSE: It’s good. Charlotte: Now before I begin, I have to let you know that our call is recorded. Can you tell me what actually made you decide to work with [unclear 0:00:40] National Debt Relief as opposed to other providers? JOSE: Good. Charlotte: What made you decide to work with National Debt Relief, as opposed to other debt relief companies? JOSE: Aside from your reviews, I’m guessing the success of the reviews. Charlotte: Tell me about the service and the program that National Debt Relief signed you up for? JOSE: I was able to collect all my debt into one chunk and then pay it off. Also was able to get settlements lower than what the balance was. Charlotte: How easy or difficult would you say the enrollment process was? JOSE: It was pretty simple. It wasn't difficult at all. Charlotte: Now is there anything about the process that you feel could have been improved? JOSE: Not at all. I think everything went smoothly. Charlotte: Perfect. Can you give me a little feedback on your experience with your negotiator? What did you think about your negotiator? JOSE: Negotiator was really firm and fair. Charlotte: Do you happen to remember the name of your negotiator by chance? JOSE: I do not, actually. Charlotte: Okay. Is there anything about that representative stood out [unclear 0:03:04] at all? JOSE: No, not at all. Charlotte: Perfect. How comfortable did you feel working with the negotiator through this process? JOSE: Very comfortable. Charlotte: Perfect. So if you had any questions or concerns, how did the negotiator work with you to resolve any questions or concerns that may have arisen? JOSE: At this point, I really didn't have any concerns at all. So, I mean, been doing a great job. Charlotte: Awesome. So if you were gonna rate your experience with National Debt Relief so far, on a scale of maybe one to five, and five would be that you would recommend to friends and one is you were pretty dissatisfied, how would you rate them? JOSE: Is 5 the highest? Charlotte: Yes, 5 is the very highest. JOSE: Okay. Then we’ll go with 5. Charlotte: Would it be okay if I posted your comments as a review on our public web site for National Debt Relief? JOSE: Yes. Charlotte: I will also send over a link so that you can have it as a record for yourself as well. And I have you at salvipride673@gmail.com. JOSE: Yes. Charlotte: How did National Debt Relief work with you as far as setting up a payment [unclear 0:04:45]? JOSE: They did pretty good. Like I said, I have no complaints at the moment. Charlotte: How comfortable were you with the amount that you were paying? JOSE: Very comfortable. Charlotte: Perfect. Now as far as your thoughts on the cost in relation to the quality of service you received at National Debt Relief, what would you say about that? JOSE: The service team was all right. Charlotte: Now if you were going to rate your experience on a one to five, five is that you would recommend to friends and one is you're pretty dissatisfied, how would you rate them? JOSE: 5. Charlotte: Perfect. Would it be okay if I posted a few of your comments to our website? JOSE: Yes. Charlotte: Now if a friend or a family member were asking you about National Debt Relief, what would you say? JOSE: Really great people to work with. Very quick and easy, very responsive, no issues. Really makes you feel like they’re there for you. So not a scam at all. Charlotte: Perfect. Now about where are you in the process at this point? JOSE: I've already had two creditors resolved already. Pretty happy about that. Charlotte: And of course, our call is recorded.

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