Credit Card Report
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Your credit score is more important than how much you earn, or how much money you have in your savings account. The Washington Posts says:

In just three digits, that score tells lenders just about everything they say they need to know about how likely a person is to pay back a mortgage loan in a timely manner. The more risk potential home buyers pose, the less likely they are to get a loan with the lowest possible interest rate and the best terms. It’s the rare lender who looks only at a credit score, but a low score will put you in a bad position.

What people don’t know is that they can goose their credit scores relatively quickly with a few small steps, lending and credit experts say. But first they must find out what their scores are and understand what they mean.

According to the article, many potential home buyers don’t know their credit score, let alone that there are steps they can take to improve it if needed.

Some people simply asume their credit standing and current financial status stands in the way of a new home:

Ryan and Colleen Kelly were the latter. With $30,000 in credit card debt, they figured their chances of getting the mortgage they needed to finance the home they wanted would be slim.

But they recently closed on a new home that they could buy with an interest-only mortgage that requires a very low monthly payment.

While carrying a large outstanding credit balance is not helpful, the couple had in recent years unwittingly taken steps to limit the damage:

For starters, their credit cards had been open several years with an excellent record of on-time payments, which helps assure lenders that the couple will not fall behind on house payments.
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Because many home buyers do not understand that, they often rush to close longtime accounts in good standing before applying for a mortgage. In effect, that weakens their credit scores. Open credit cards do not hurt your credit score. Having them nearly maxed-out does.

“If you’re going to close credit cards, do it in a mindful way,” one financial adverser says. “Do not close the old ones with high limits and low balances. Close the young ones with low limits. It’s a science.”

Science is what helped shape the credit-scoring business into what it is today. The nation’s most widely used scoring formula, called FICO, was developed by Minneapolis-based Fair Isaac Corp. and became commercially available in 1989. FICO was adopted widely by mortgage lenders in the late 1990s after Fannie Mae and Freddie Mac endorsed it.

The nation’s three largest credit reporting agencies - Equifax, TransUnion and Experian - use FICO software to calculate credit scores. They then sell the scores to lenders that underwrite car loans, credit cards and mortgages.

While FICO can rate most Americans with fat credit histories, others are more difficult to peg. Among them are college students, consumers who pay their bills with cash and people who haven’t tapped into their credit for a long time. Fair Isaac estimates as many as 50 million people fall into this group, which is difficult to score fairly using the standard method. In those cases, some lenders allow borrowers to submit nontraditional proof of their creditworthiness, such as utility bills, child support payments and even Book-of-the-Month Club memberships, Fair Isaac spokesman Craig Watts said.

For everyone else, there are standard FICO scores, which range from 300 to 850. The median is 723, meaning half of consumers score better and half score worse. The higher the number, the stronger the rating.

It’s unlikely that each credit agency would give the same score to the same person. That’s because the agencies collect their information from different creditors. Even when they collect from the same creditors, they update their records at different times.

Many potentional homebuyers are surprised when they discover that a person’s salary and personal income are not factored into the FICO score. The theory is that income is not a strong predictor of creditworthiness.

“It’s a measurement of your ability to make a $5,000 house payment each month, not whether you will actually make the house payment,” Ulzheimer said. “So a doctor with a seven-figure income does not automatically score higher than someone who works at a retail store and makes $20,000 a year.”

In FICO’s estimation, whether someone pays their bills on time is such a good predictor of creditworthiness that payment history makes up 35 percent of the score. That’s followed by amount owed, length of credit history, types of credit involved and new credit opened.

FICO facts

To receive a FICO score, a person must have at least one credit account open for six months and at least one that has been active within the last six months. Here are a few tips on how to improve that score:

• Pay bills on time, and pay at least the minimum amount due.
• Contact your creditors immediately if you miss a payment and work out a payment plan (preferably before they report you to the credit bureaus).
• Do not close credit card accounts in good standing. Someone with no history of credit tends to be seen as a higher risk than someone who has a record of managing debt responsibly.
• Avoid charging to the limit of one card. It’s better to charge less on two cards with room to spare.
• Ask creditors to raise your credit limit so that you do not appear overextended.
• Do not open new accounts, because it shows an interest in acquiring new debt, which can lower your score.
• Aim for a rich mix of credit, with revolving credit (credit cards) and installment debt (car loan, student loan).
• Correct errors on your credit reports.
• If you suspect your creditor is not reporting positive information to the bureaus, contact the creditors or the bureaus directly to set the record straight.
• Do not assume that a high salary guarantees a good credit score.
• Find out the key factors that are dragging down your score so you can fix them.