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Credit is the key

Many people don’t realize that their credit dictates what they can buy and what they will ultimately pay for it. A low credit score will almost always lead to an increase in what you pay to obtain credit.

Your score will dictate what type of financing you get and if you will get financing at all. The lower the score, the higher the closing cost or interest rate.

Credit scores are determined by your payment history, the amount of available credit that you have, the amount of ongoing balances that you have relative to you limit, the types of accounts that you have, and how long those accounts have been open.

The three credit bureaus that issue credit scores are Equifax, Transunion and Experian. These companies use similar formulas to come up with credit scores, which are also called fico scores.

The credit score that they issue is used by companies to determine if you are a good credit risk or not. Mortgage companies will typically use the middle fico score when looking at a borrower’s ability to pay for a mortgage.

A borrower that has a 740 credit score has a 1 in 1,400 chance defaulting. A borrower that has a 620 scores has a 1 in 40 chance of defaulting.

There are many ways to improve your scores.

Pay your bills on time — 35 percent of your credit score is payment history. This is first and most important of the credit rules.

Have available credit — This is another essential component of your scores. You must have open and available credit to have a good score.

Keep your credit card balances low — Your balance should never exceed 50 percent of the credit limit. If your credit card company wants to increase your limit, always take it. It can only help your scores.

Keep those cards open — Once you open a credit card, keep it open. If you close it, that can hurt your credit because you will have less available credit. The older the account, the better it is for you.

Feel free to e-mail me with questions at ron@ronmortgage.com. For more about my company, visit www.ronmortgage.com.

About Ron Ricchio

Renato (Ron) Ricchio is president of Chicagoland Home Mortgage. He grew up in Westchester and attended St. Joseph High School and DePaul University, taking a job as a loan officer in the mortgage industry soon after graduating with a bachelor’s in finance in 1991. He started his own company in 2001, which he operates today. He has been ranked in the top 150 loan originators in 2010 and 2011 by Origination News. Ron is happily married with three beautiful children. A board member of San Francesco Di Paola Society and the founder of Ricchio Family Toy Drive for Lurie’s Children’s Hospital, he enjoys cooking and spending time with family and friends.