What is a fico score/credit score? What things can affect my fico score/credit score?

On various television programs you have probably heard the words “fico” score or credit score mentioned, but what exactly is this? 

Fico stands for the Fair Isacc Corporation.  They were the inventors of a credit scoring system that most of the world uses. 

Your credit score or fico score represents a calculated measure of what type of credit risk you actually are.  Credit scores range from 300 – 900 with the majority of people in the 600 – 800 range. Higher credit scores mean lower interest rates charged on loans.  Lower credit scores mean higher interest rates charged on loans.  For instance, a person with a credit score of 450 will pay  three to five points higher interest rates on loans than a person who has a credit score of 800.

Keeping a good credit score is very important because it can affect your ability to get a mortgage, get a school loan, get a car loan and even your ability to rent suitable accommodations. 

What are the things you may want to know…that affect your credit score for better or worse?

The amount of time you have had credit – Loyalty pays off. Try to establish credit with companies for at least seven years or more. Although other reward programs or incentives can be tempting, jumping around from credit card company to credit card company can lower your fico score/credit score. Of course, age also plays a factor in the total amount of time you have had credit too.  The amount of time you have had credit makes up 15% of your fico score/credit score. 

How often your credit is accessed – Buying a car?  Opening a bank account?  Applying for a credit card?  Renting an apartment? Inquiring about loan?  Getting a mortgage?  All these things require access to your credit report.  Each time someone other than you accesses your credit report it lowers your score.  If you are buying a car, inquiries within 14 days will be grouped together.  If you are buying a house inquiries within 30 days will be grouped together.  How often your credit is being accessed makes up 10% of your fico score/credit score. 

Different types of credit you have – Installment debt like a car loan or a mortgage is looked upon more favorably than revolving debt like credit cards.  The different types of credit you have make up 10% of your fico score/credit score. 

Your bill payment history  – Do you pay your bills in full and on time?  If you are not paying your bills on time and/or making minimal payments on several maxed out credit cards this will lower your credit score.  Do you know that your bill payment history actually makes up the largest portion of your fico score/credit score?  35% 

How much debt you have compared to available credit – Maxed out or high balances on your credit cards?  If you compare the amount of your available credit on your credit card compared to the amount of debt you have on your credit cards; does it work out to over 50%?  If it does, this affects your credit rating for the worse.  Your goal should be not to borrow more than 50% of your available credit balance from any single lender. (mortgages and car loans excluded) Do you know will have a better credit score if you owe smaller amounts on several credit cards rather than maxing out one credit card to its limit?  How much debt you have compared to available credit makes up 30% of your fico score/credit score.

Here is an example of what a credit report looks like.

If you live in Canada, here are links to Canadian credit bureaus:

Transunion

Equifax

Experian


If you live in the U.S. here are links to U.S. credit bureaus: 

Equifax

Transunion

Experian


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Considering buying or flipping a U.S. foreclosure property?

With U.S. home prices declining many people are considering buying foreclosure properties in the U.S.  Foreclosure properties in some states are selling for $1.00 to $1,000.00, but before you jump on the band wagon thinking you are getting a great deal, what are the things you may want to know….

Ghost Towns – Some neighborhoods have so many foreclosures that they are becoming “ghost towns”.   The problem with purchasing a foreclosure in a “ghost town” is that the neighborhood may or may not come back to life when the economy eventually gets better.  A lot of homes in these “ghost town” neighborhoods are being torn down because no one wants to purchase the homes and the neighborhoods are attracting vandals and crime.

Flipping – With attractive prices many people are thinking they can fix up these cheap foreclosures and flip them for profit.  Some of these flippers are also learning the hard way.  The house may have unforeseen problems that cost more to fix than planned, thieves may break in and strip out everything once you are done renovating and/or the house may take longer to sell than planned or may not sell at all.

Consider employment levels – Cities whose economies are not diverse enough or depend on one or two industries as a means of revenue/support have been especially hard hit. For instance, with auto sales slowing Detroit has taken a hit.  Nevada has an 8.3% unemployment rate because tourism is down and gambling revenues have dropped 69% as of June 2008. 

Retail sales – Are stores, restaurants, etc. surviving or shutting down in the neighborhood?  Sure it is a given that a business or two may fail in the neighborhood, but when anchor department stores and 25% of smaller stores in a large shopping mall are shutting down this may indicate further economic declines and hard times will hit the neighborhood. 

Overbuilt – Some neighborhoods are way overbuilt with too many homes for too few of people.  These areas may take a long time to recover or may not recover at all. 

Remember…

A cheap price on a foreclosure property doesn’t automatically guarantee a quick profit in the future, a lot of other factors are at play too.

What are the pitfalls of choosing a real estate agent too quickly? Should I hire the first real estate agent I meet? Why should I interview a real estate agent before buying or selling a home?

Sooner or later you may need the services of a real estate agent to purchase a property or to sell a property.  Many people choose real estate agents based on familiarity/comfort rather than looking at the real estate agents qualifications and whether the real estate agent actually suits their needs.  Unfortunately, talking on a real estate agents blog for a few months or meeting a real estate agent at an open house for few minutes is not a guarantee that you will receive the type service you are actually looking for. What are the pitfalls and things you may want to know… if you choose a real estate agent too quickly?

Personality clash – Lets face it, some people in life can rub you the wrong way as you get to know them. Of course, this goes both ways, clients rub real estate agents the wrong way and real estate agents rub the clients the wrong way. Rather than suffering it out, seek to mutually break your contract if the person is driving you crazy and you are about to lose your cool. 

Promotion/Marketing – Does the real estate agent attend showings? What are they saying about your home behind your back?   If a potential buyer makes negative comments is the agent just agreeing with the negative comments or coming back with positive spin instead?  How your real estate agent responds to negative comments about your home can make or break a potential sale.  

How does a real estate agent plan to advertise your home? MLS only? Free websites?  Advertising budgets and promotion vary from agent to agent.

Best price – Getting the best price really depends on how good the agent is and whether it is a buyers or sellers market. In a hotter sellers market some real estate agents are more concerned about getting the quickest sale possible rather than getting you a good price.  Others may not have the experience how to price the type of home you have or how to price a home in a quickly rising market. Recommended selling prices can vary 100k or more in a sellers market.  In a buyers market, you have to be aware of your competitors prices and may have to adjust your price expectations accordingly.

Listening/understanding needs – Does the real estate agent take time to listen to you?  Answer your questions and go over things with you?  Is the agent taking you to see the type of properties you are looking for in your price range?  

Level of service provided/assistants – What level of service are you expecting? Real estate agents provide various levels of service.  Some you can contact directly via cell phone, others you have to call the real estate office and have them paged, others may have assistants, etc. Some popular real estate agents may only offer personal assistance once or twice and then you may be passed onto their assistants instead. These assistants may be competent or incompetent, been in the business for a few years or a newbie with limited experience.   

Commissions – Are negotiable and not carved in stone.  Some real estate agents will negotiate their commissions, others will not.  Don’t end up like one of my friends who verbally negotiated 25% off the commission rate, only to have the real estate agent back out of the deal because it was not in writing.

General communication – How does the agent communicate with you in general? Are you met with insults or you don’t know what your talking about, if you bring up a real estate news story?  Are they polite or in a big hurry? Do they return your calls or does it take hours and you have to keep calling them back instead? Is the agent always on their cell phone while showing you homes?  If they are not listening to what you are saying about the homes during showings, how will they be able to help you find the right home you are looking for?

Remember…

Whether buying or selling a home take the time to interview at least three real estate agents. Don’t hesitate to ask questions and make sure any verbal agreements are in writing. Pay attention to the number of negative and positive comments made.  Does one outweigh the other?  Is this the type of agent you wish to hire?

If you are not sure how to interview a real estate agent or need further tips on questions you should ask, please google:

How to interview a real estate agent when buying a house 

or 

How to interview a real estate agent when selling a house

Please note: I didn’t provide specific links to websites, because each person has their own comfort level on what information they may want to know and how tough they want those questions to be.

Selling a home? What I should do before the for sale sign goes up?

So you decided to sell your home.  Perhaps, you think it is perfect just the way it is or you think it needs some repairs or cleaning, but you are not sure where to start.  Need a little insight? What are the things you may want to know…about what potential home buyers notice about your home.

Unfinished renovation projects – This includes painting a wall or two and not finishing painting the rest of the room, missing floor tiles, missing baseboards/moulding, missing drywall, etc.

Leaks – Leaking roofs, leaky pipes, dripping taps, running toilets, water mark stains on walls and/or ceilings etc.  

Dings/scratches/holes – Dings/holes in the doors/walls.  Although you may view dog scratches as a normal part of having a pet, a buyer may view scratches as a refinishing/renovation project.

Mismatched interior/exterior – Perhaps you spent a lot of money renovating the exterior, but not the interior or vice versa.  Try a fresh coat of paint to balance out the overall look.

Yards – Overgrown trees, shrubs, weeds, long grass, doggy extras/burn marks, etc.

Broken or Missing anything – floor tiles, appliance handles, doorknobs, blinds, light shades, fence boards etc.

Stains and dirt – dirty/stained carpets, greasy appliances, dirty laundry on the floor, a lot dust build up, dirty grout, black mold in the shower, etc. 

Smell – Every home has a smell when you first walk in the door.  Is yours a pleasant one?  Pet odors, dirty diapers, mildew, smelly garbage, stale cigarette smoke, etc. are not considered pleasant smelling items to a lot of buyers. You want a buyer to stay and look around, not want to get out as fast as they can because something smells bad.

Remember…Top dollar demands top shape.  Most buyers overestimate repair costs by double to triple the actual amount and deduct those amounts off their offer accordingly.  If the housing market in your area has soften and there is a lot of homes for sale, remember your competition may have no repairs or less repairs than you for same price.  Homes that require a lot of repairs in a buyers market, can linger on the market a lot longer or even go unsold.

Is that really a good deal or too good to be true? What should I know about hidden costs?

We have seen them advertised:  the home renovation memberships with manufacturers prices too low to advertise,  prices so low that we can’t advertise them, 1 or 2 year no interest payments, etc., but in this world of so called “best buys” what are the things you may want to know…

No payment, no interest deals – may have administrative fees that may end up costing more than if you would of took out a loan and paid interest on it.

Home renovation memberships – advertise how much you save on your home renovations, but unless you are renovating extensively year after year, the initial membership fee of $3000.00 plus yearly maintenance fees after that could end up costing you more in the long run.  The downfall of these types of memberships is that very few items are actually on display and you are mostly looking at manufacturers catalog pictures instead. Personally, I don’t like to shop by photos only.

Higher Interest savings accounts – may require a minimum balance or may only offer that higher interest rate for a limited time period like 3 months and then pay out a much lower interest rate after that point compared to other banks, etc.  Most of these higher interest rate accounts are non-redeemable for a certain time period. In some circumstances you may be able to redeem them, but with high penalty rates for early withdrawal.  

Some insurance companies advertise higher interest rates and no fees, but require you to have an account at a bank anyway to use them. Since most banks charge fees on accounts, this save your money, no fees, advertising is kind of deceptive. 

Fitness memberships – various type of memberships require you to pay dues for a set time period whether you use the fitness center or not.  If you are busy with work, starting a New Years fitness resolution, etc. you may want to consider different options or paying a drop in rate before locking into a membership of any type.  I know a mother who is locked in paying for her teen aged daughters fitness membership for one year but, the daughter has only gone to the center twice in 6 months.  Needless to say, the mother is not too happy with that situation, but don’t teenagers change their minds about a lot of things in general?

Low mortgage rates – some mortgage brokers may advertise lower interest rates than banks.  These are usually only for a limited time period like 3 months, 6 months, etc and then the interest rate jumps up to a much higher rate.  The interest rate after the introductory rate is over is usually much higher than a lot of banks.  They don’t call these “teaser” rates for nothing.

Remember…before you lock yourself into any of these so called deals, you may want to carefully read the fine print for hidden administrative fees, terms, conditions, etc. That deal may just be too good to be true after all!

Why do home owners deny problems that are on the home buyer’s inspection report?

So you finally took the plunge and decided to purchase a home, but the inspection report reveals items that might be costly to fix.  The home owner is upset over your inspection report, they say your report is inaccurate there is nothing wrong with their house.  The real estate agents may not be too happy either because their commissions are on the line if you back out of the deal.  Perhaps, your real estate agent is even telling you that it won’t cost that much to fix the items that the inspector discovered. You are getting opinions from different directions. It is stressful and confusing, but what should you do?  

Things you may want to know…reasons why home owners may deny home buyer’s inspection reports:

My Investment – Because a home is usually the biggest investment decision people make, some home owners can not believe and/or refuse to believe anything can be wrong with their investment choice period. “Why I couldn’t have of bought a home that needs repair.”  “I couldn’t have bought a lemon.” etc. 

Emotional attachment – If a home owner has owned the home for a long time and/or has a lot of happy memories associated with the home this can cloud their judgement too.  It’s a happy house, how can there be anything wrong with it?

Financial investment – If the home owner has invested money into renovations like painting, new flooring, etc. they may have a hard time believing anything else could ever be wrong with their house, because they would have noticed it during the renovation process themselves. 

Expert – Some owners believe if they live in a house for a certain time period they have become repair experts, they have already fixed everything wrong with their home and nothing else could ever be wrong with it.

Time – When the home owner invests a lot of time into “do it yourself” renovations, this becomes their second job. If the home inspector’s report reveals something wrong with their own workmanship, this can become a sore point.

In a rush – The home owner may have deadlines of their own. Buying another home, getting married, moving to another province, state or country, flipping the home for profit, etc. Time is ticking and the last thing they want to hear about is that their home has problems.

Inspectors reputation – Some very thorough home inspectors have bad reputations because their honest, thorough, home inspection reports can cause buyers to back out of purchasing the home.  You may hear a lot of rumors and/or stories about how bad/inaccurate your inspection report is from all sides. 

Profit – The home owner wants to make “X” amount of profit on their home when they sell it.  They may not be pleased to see that their home has repair issues because that may cut into their bottom line and/or future financial plans.

Unexpected problems – The home owner may already be aware of problems with the home, but the inspection report reveals additional problems they didn’t expect to have on top of everything else.

Remember…

If you are a home buyer and you find yourself in this situation, try not to let your emotions get the best of you.  This includes: 

But, it is our dream home – A dream can turn into a nightmare if the home requires a lot of costly repairs. Consider a home like a date, it may look good, but as you get to know it you may not really like it, let alone want to commit to it.   A high maintenance home and/or a home that requires a lot of costly repairs can cause a lot of financial strain and take its toll on the best of relationships.

Short on time, in a hurry or a rush – We have to remove the subjects by such and such date.  We have to move before the kids are back in school, etc.  Try to slow down, rushed decisions are not always the best decisions.  You can always ask for your subject removal date to be extended if the inspection report reveals problems you want to investigate further, etc.

Second guessing/doubting – If you find yourself second guessing or doubting your home inspection report and/or inspector’ reputation, ask yourself the reasons why?  Have you become desperate to own a home, any home?  Are you ignoring major repair problems for the sake of owning a home?  Have you actually obtained quotes from contractors for estimated repair costs before proceeding or are you second guessing yourself that you can financially handle any repair bills?

Buying a home is like a waiting for a bus, if you wait long enough, another one will come along. Plus, you may not want to jump on the first bus (home) you see, it may take you in the wrong direction.

Are you so focused on getting a discount that you miss the big picture?

Everyone loves getting a deal no matter what they are buying. I got a great price, it was a steal of a deal, it was on sale, etc., etc. are common sayings we hear quite often from family, friends and coworkers on a regular basis.  But…before you jump up and down in glee there are things you may want to know…if your actually getting as good as deal as you think you are.

Lets examine some of the areas where people may be lulled into thinking they are getting a great deal when they may not be.

Homes.  Some people are so focused on getting the cheapest price possible that they forget about over all construction quality and long term maintenance/repair costs. A good deal on a poorly built home that requires thousands of dollars in repairs or renovations may end up costing you more than if you would have paid more for a very well built home that requires less maintenance/repairs over the long run. Try to hire a home inspector that is very, very, thorough so you can avoid buying the “deal” that turns out to be a money pit. 

Clothing, shoes, etc.  Examine the quality of the item carefully. Thin material, loose threads/buttons, unfinished seams, hems falling apart, gaps where the sole of the shoe meets the leather, etc. These items may fall apart after wearing them for a short time.  Instead of buying many “deals” that fall apart quickly you may be better off waiting for a higher quality item to go on sale or buying higher quality second hand items that will last for a much longer time period.  If you find yourself buying things that fall apart or don’t last very long, try to calculate how much you are spending on all these items and how often you are replacing them.  You may be paying out a lot more over time than if you would of bought higher quality items originally.

Home Renovations.  The cheapest quote may not be the best quality job.  When you go to sell your home, buyers may look at a poor quality renovation job as a new renovation project and deduct higher amounts off their offer because of it.

2 for 1 deals – Grocery stores are famous for this one.  The buy one get one free is usually based on paying full price for the first item and getting the second one free.  A lot of times the same item is advertised on sale for a lower price a week before or after the 2 for 1 deal is advertised. 

Meals – Special discount coupons or two for one meal deals may require you to purchase beverages. Some restaurants have high mark ups on beverages and charge a lot for them, that is how they make their profit. If you normally drink water with your meals, ordering two meals at regular price with water may actually cost less than the meal deals that require you to purchase beverages with them.

Manufacturers Suggested Retail Price or MSRP – This represents the “maximum” product price, it is not the recommended retail selling price.  You will see MSRP on everything from electronics, to furniture, to automobiles, etc.  Seeing a lower hand written price for $50.00 off the manufacturers suggested retail price is not a deal. 

Automobiles.  Beware of red tag sales, family/employee pricing sales. Profits at dealers are actually higher during these times than at other times.  People mistakenly assume they will save a lot of money during these special sales or get a better discount than shopping at other times of the month, not necessarily so. The best time to shop for a vehicle is the last day of the month, late in the day when the sales staff is tired.  The dealers want to close their books and want good sales quotas.

Furniture. There is always room for additional discounts even if the item appears as if it is on sale, it pays to ask and shop around. MSRP pricing with hand written prices below the MSRP is very common at furniture stores. Tent sales involve merchandise that is damaged, has been discontinued or clear out items the store will no longer be caring because of poor sales figures.  Always try to get additional discounts on tent sale items or on floor models that are for sale, because these are items that the store really, really, wants to get rid of. 

Jewelry. There is a very high mark up on jewelry items.  The best time to buy jewelry is usually May, but June through August is good too.  Most people get engaged at Christmas and Valentines or give jewelry as gifts at this time.  Discounts and/or quality of items on sale will be limited during these times.

Percentages off the sale price, percentages off the original price.  The bate and switch game that some retail stores play to clear end of season merchandise. At first you will see a sign 30% off the last marked sale prices, then you will see a 40% off sign, but 40% discount is taken on the original price and all the sale price tags have now been removed.  This item may now cost more at 40% off the originally price than it did when it was 30% off the last marked sale price.  A higher discount percentage off the original price may not be the best deal, it really depends on the type of store you are dealing with.

Price matching guarantees.  The majority of people are lulled into a false sense of security when they see the words: “we will match our competitors prices, we will beat our competitors prices by 10%”, etc. Do you know the majority of people don’t bother to check if the competitors are actually offering better prices than the store they are buying the merchandise from?  With so many search engines at your finger tips, it may pay to shop around.

Remember…

MSRP is Manufacturers “Suggested” Retail Price.  A suggestion is just a suggestion, not the price you should be paying.

High prices can hide in bundle type packages and it may be cheaper to buy the items individually than in bundle packages. 

Manufacturers will set MAP (minimum advertised price)  That is why you may see brand names left out of advertisements and generic words like “plasma tv’s on sale”.  The retailer may actually be selling the manufacturers tv for less than the manufacturer will let them advertise the item on sale for.

When items are really cheap, they may be at the end of their life cycle, seasonal, discontinued or just plain old.  Dollar/liquidation stores thrive on selling old stock, check for expiry dates.

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