January 2020

REAL ESTATE NEWS

Brought to you by Lisa Moxley

Credit Scores Demystified

If you've made a resolution this year to get your credit on track, getting started
can feel a bit daunting. After all, it can sometimes seem as if credit agencies
want to keep you in the dark about how scores are calculated. Not to worry -
with some diligence on your part and a little insight into the world of
credit score-keeping, you can get back on track in 2020.

Credit scores follow an algorithm first developed by the data analytics

company FICO years ago. For a while, credit scores weren't the primary force
behind a credit decision but over time the impact of a credit score became
more and more important. Most every loan program available today has a
minimum credit score.

There are five characteristics of your credit history that make up your three-
digit score: your payment history, account balances, the length of your credit
history, the types of credit used and how often you've applied for new credit.
Credit scores will improve much more quickly by paying attention to the
two categories that have the greatest impact on a score: payment
history and account balances.

Payment history accounts for 35 percent of the total score. When

someone makes a payment more than 30 days past the due date, scores will
fall. An occasional "late pay" won't do much damage to your score but
continued payments made more than 30 days past due definitely will.
Preventing late payments is a key to recovering your score.

Account balances compare outstanding loan balances with credit lines

and make up 30 percent of your score. If a credit card has a $10,000 credit
line and there is a $3,300 balance, scores will actually improve, as the ideal
balance-to-limit is about one-third of the credit line. As the balance grows and
approaches or exceeds the limit, scores will begin to fall.

The remaining three have relatively little impact. How long someone has used
credit accounts for 15 percent of the score, but there's really nothing anyone
can do to improve this area other than to wait. Types of credit and credit
inquiries both make up 10 percent of the score. By concentrating on
payment history and account balances, scores will improve significantly
over the next few months.

Inspections vs. Appraisals vs. AVMs

Inspections, appraisals, and automated valuation
models, while related, all have different functions but
can be easily confused. Let's take a closer look.

Inspections: A property inspection is ordered by the

buyer and is meant to be an unbiased look at the
condition of the property. While not necessarily
required by a lender, an inspection protects the
buyer from purchasing a home that requires
expensive repairs or otherwise doesn't live up to its
list price. A property inspector will examine the
condition of the property inside and out, running
through a checklist of areas including, but not limited
to, the roof, electrical panels, wiring, plumbing,
appliances, doors and windows. If any issues pop
up, the inspector makes note and provides the buyer with a report.

Many reported issues will need some attention but won't affect financing. If
major repairs are needed however, the lender might want to have those
issues addressed before they provide any funding.

Appraisals: Once the inspection has been completed and reviewed, the
lender can order an appraisal. The appraisal will consider comparable homes
in the area as well as other factors such as lot size, nearby schools and crime
rates. The goal of the appraisal is to determine the true value of the property
for the sake of the lender.

The key difference between an inspection and an appraisal is that an

inspection aims to assess the physical condition of a home itself, while an
appraisal solely determines the market value of the real estate.

AVMs: An automated valuation model is a digital evaluation of the value of a

home. An AVM will quickly research the database of similar homes in the area
and compare them with the value of the subject property. AVMs are often
used to assess the value of a property portfolio, and have the advantage of
saving time and money since no one physically visits the property. However,
AVMs can't take into account the true condition of a property and often aren't
enough to secure a conventional loan for a home buyer.
 QUESTIONS? VISIT lisamoxleyrealestate.com

LISA MOXLEY
Broker

CENTURY 21 New Heritage

847.669.9555
630.209.4354

lisamoxley4242@gmail.com
lisamoxleyknowsrealestate.weebly.com
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