Bad Credit Score

A bad credit score makes buying a house more difficult using traditional financing. It raises the cost of the money you borrow, which can add up to a great deal of additional interest over the term of the loan. The same is true for credit cards or buying cars.

Having a bad credit score isn't the end of the world and it can happen to the most conscientious people for a number of reasons. Generally the real cause is spending more than you can afford and a lack of understanding about how credit works. However, divorce, lay offs and illness are big factors in a bad credit score, and ultimately foreclosure and bankruptcy.

The long range solution is learning how to manage and eliminate debt. That is: learning how to use debt to create capital and wealth as opposed to a how much 'monthly payment' you can afford.

But for starters, if you don't know already, you need to find out 'how you rate' in the credit community, so you know what you are working with.

What is your FICOŽ Score and why is it important?

There are different methods of rating credit today but one of the most commonly used scoring methods is called the ficoŽ score. This is actually a trademark of Fair Isaacs and Company and the Fair Isaac Corporation.

This score has been used by lending institutions and credit organizations behind the scenes commercially for many years and until recently was not available to the consumer.

You can find out more about your fico score here.

When we work with clients - either as sellers, buyers or investors - we put a good deal of emphasis on repairing credit and improving ficoŽ scores, over time, as part of the overall game plan. We generally discuss repairing credit early on in our discussions as part of a long-range solution.

As a homebuyer, your credit score ultimately determines how much house you can buy. The lower the interest rate, the more you house you get for the monthly payment. As an investor, your credit score can have a significant influence on net profits in your real estate investments.

Here's an example of how a bad credit score costs you money.

Suppose your existing fico score is in the 500-599 range. You buy a house with a principle loan amount of $175,000 and the term of the loan is 30 years. Let's say your interest rate on that money is ~10.25%.

That would make your monthly payment ~$1500.

If you had a 720+ fico, that payment would drop into the $1100 range at a ~6.5% (or better) interest rate. That is a total savings over the term of the loan of about $150,000 for the same house - plus a monthly cash savings of over $400.

These rates change all the time and these numbers vary based on a number of factors.

The good news is that you can fix a bad credit score. Show me how to repair credit.

You can work around your bad credit score until you improve it.

There are ways to buy property with a bad credit score using creative financing techniques. Whether you are an investor or not, you can learn how to get around these obstacles until your process of repairing credit is complete. You need to do some homework and get educated so that you know what your alternatives are - and how to use them.

Bad credit affects the cost of money, but it isn't the end of the world. You have to work with what you have. The starting point is to learn what you need to do and then get started doing it.

Foreclosure and Bankruptcy

In the past few years, where we are located in the Seattle, Washington area, many people have taken a beating financially. A combination of the dot-com boom and bust cycle and Boeing lay offs has resulted in a significant reduction in both monthly income and the overall values of retirement and investment portfolios for many. It's not surprising, that because of this, foreclosure and bankruptcy are at an all time high.

If you need help in a foreclosure situation, get more info here stopping foreclosures