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The “American Dream” is becoming a reality for more families than ever before. According to the U.S. Department of Housing and Urban Development (www.hud.gov) over 67.7 percent of Americans are now homeowners. This is the highest homeownership ever.

The chances of becoming a homeowner are greatly improved when you know and understand your credit score. Lenders use many factors in determining whether or not to approve a loan and your credit score is one of them. Lenders also look at your income in relation to the amount of your debt, your employment history, and how much money are do you have in reserves in case of emergency. Although your credit score is just one factor in determining if your loan will be approved, it is an important one and it is one that you can improve.

Under the Fair and Accurate Credit Transactions Act you are entitled to a free copy of your credit report annually from each of the three national consumer credit companies. A central location has been set up at www.annualcreditreport.com. Here, you can also obtain your credit score (one from each of the companies) for a small fee.

Your credit score is a “snapshot” of your credit history, which changes often. It can also be called your FICO score because the three national consumer credit companies use software to determine the score developed by Fair Isaac and Company. FICO scores range from 300 to 850 and the higher the score the better your chances of obtaining credit. According to myFICO (a division of Fair Isaac and Company) www.myfico.com, the national average is 723. This does not mean that if your credit score is lower than the national average that you will not become a homeowner. There are many loan programs available that allow lower credit scores. You may pay a higher interest rate on your mortgage, but you will achieve the American dream of owning a home.

According to myFICO, there are five factors used in calculating your credit score. Your payment history represents 35 percent of the number. This is followed by the amount you owe at 30 percent. The length of your credit history represents 15 percent of your FICO score and any new credit and the types of credit you use represent 10 percent each. Knowing these factors can help you improve your score.

Your payment history makes up the largest part of your FICO score. If you want to improve your score it can be as simple as pay your bills on time. If you have missed payments, get caught up. Over time, this will improve your score. The longer you pay your bills on time, the better your score.

A factor in determining your credit score is the amount of debt you actually owe versus the amount of credit that is available to you. Hence, paying down your obligations will improve your credit score. You do not want to close your unused credit cards since they will show you have more credit available to you than you are actually using. Paying off debt is good while closing the paid off debt can actually hurt your score.

In order to determine a credit history, you must have at least one piece of credit reporting for at least six months. So if you find that you have no credit score, you need to find a way to establish credit for a period of six months. Although you need to watch for various credit scams, there are secured credit cards available that will meet this need.

Since your credit score is a “snapshot,” opening t0o many new accounts in a short period of time will hurt your credit score. This is caused by your average account age being reduced by all the newly established credit.

When you apply for credit (i.e. mortgage, auto loan or credit card) the company will look at your credit report. This is called a credit inquiry. Although too many credit inquiries can lower your credit score, opening new credit and paying it on time will improve your overall score. You reviewing your own credit, as long as you are obtaining your credit report from an organization authorized to provide credit reports to consumers, will not affect your credit score.

It is better to have credit cards and pay them on time, than to not have any credit at all. A lender will look at a mortgage loan or large installment debt more closely than a small credit card. However, all types of credit, including paid off and closed accounts, are used in calculating your credit score.

If your credit score is low, often the best way to raise your chances of becoming a homeowner is by paying your debts on time, and for a period of time. The longer you demonstrate your ability and willingness to pay your obligations, the greater the chances you will be able to achieve the “American Dream” of homeownership.

Jim Campanella is the Operations Manager of Fresh Start Financial Services, a mortgage broker in Rolling Meadows, IL.

Since 1989, Jim has been active in State and National professional associations/trade organizations in the mortgage industry. in 2004, Jim Campanella was recognised by the Illinois Association of Mortgage Brokers as the Mortgage Broker Operations Manager of the Year. He has spoken on a range of mortgage related topics from coast to coast.

Fresh Start Financial Services is a licensed mortgage broker in the States of IA, IL and WI and originates loans also in CO, IN and MO. In 2003, the Illinois Association of Mortgage Brokers recognised the mortgage broker as the Subprime Mortgage Broker of the Year.

Jim and his family make their home in Rockton, IL.

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Many people are unaware of what a credit score actually means. In fact, a survey of 1,000 Americans taken in September 2004 demonstrated that only one third of people knew that a credit score was a measurement of how likely a person is to pay off a loan. Having a good credit score is necessary when it comes to applying for loans for cars, mortgages, and credit cards. Furthermore, having a bad credit score can lead to denial of basics such as a phone line in your home. Therefore, it is important for consumers to understand how a credit scores affects them and how it is determined in the first place.

Calculating the Credit Score

In essence, a credit score tracks how well a person incurs debt and how good that person is at paying the bills on time. Businesses, including lending institutions, look for a high score with potential customers because the higher a person’s credit score, the more likely that person is to be responsible with finances and the more that person can be trusted to pay back debts.

A credit score may vary from one credit-reporting agency to the next since they do not all necessarily receive the same information from businesses. Some businesses report to all three of the major reporting agencies, while others may only report to one or two. In addition, the statistical pool used by each agency may vary slightly, leading to a different credit score. All of the agencies, however, utilize the same software when it comes to determining credit scores. Fair Isaac and Company (FICO) develops this software and, therefore, the credit score is often referred to as the FICO score.

Score Factors

A person’s credit score is not static. It changes all the time. Every time a bill is paid on time or late it is reflected on the credit score. In addition, each time a person takes out a new loan or applies for a new credit card, the credit score changes. This is because the credit score is based on the person’s financial history and attempts to make a prediction at how responsible the person will be in the future.

The final score is highly objective and based on statistical data. Points are gained based on specific factors such as late payments, payment history, outstanding debt, and the length of time an account has been open. All of this information is compared to the statistics of people with similar profiles to determine a final credit score.

JP Burkhart recommends that you visit credit score rating scale for more information.

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Understanding your credit score rating scale can seem like an overwhelming and almost impossible prospect. A credit rating scale can be confusing, especially if you have trouble with numeric systems. In a scale you have several numbers that all mean something different. Even though it can be a hard and overwhelming to try to understand your rating scale, doing so can be rewarding and a necessity in fixing it if need be.

One of the first things you should look at it is how exactly your credit score rating scale is composed and put together. Companies look at a couple of different aspects to put it together. One thing that determines how your credit rating is put together is your past payment history. This includes how well you pay your bills and whether or not you pay them on time or not. This aspect also includes any outstanding debt, too much can make your credit rating lean towards the lower end. Something else that is considered is your credit history in general. Beginners as well as a poor one can lower it as well. Sometimes if you are just starting out it may be even lower than someone who has a history that is poor.

Other things that are considered as part of a credit score rating scale are any credit applications or inquiries into your credit. Too many of either can lower your score and reflect poorly on you and your score. Different types of loans and credit can also have an affect as well. Balances that are too high and the number of balances that are too high can be a bad sign to a credit reporter as well. High interest rates can even be a negative mark as well.

On the rating scale a score of seven hundred or more is excellent and someone with this type of score should have no problems with credit or interest rates. While those with scores around six hundred and fifty to four hundred and fifty will have some difficulty obtaining credit, though could still have a chance. A lot of times those who fall on this part of the scale will have to secure any loan they apply for with some type of collateral. Those who fall below four hundred and fifty will most likely not get approved at all, whether secured or not. These people need to find a solution to their credit problems and a way to improve where they fall on the scale if they wish to stand any chance at all.

Speaking of help in rising where you fall on the credit score rating scale there are a lot of places to start from. Free credit counseling is available if you know where to look and will greatly help you if you are in need. These credit counselors will not only help you improve your score but can also help you get back on track and be more responsible in the future to avoid the problem again.

After sifting through all the information and getting your bearings you can learn a lot. Things may not be so overwhelming after all. When it comes to the credit score rating scale and understanding it, all it takes is a little patience, which in the end can be well worth it.

Check out http://www.my-credit-center.com/ for more articles on credit card online processing and restaurant credit card processing.

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