Hypothetical Credit Personalities, Are You One?

Recognize Yourself?

Let�s look at four hypothetical credit and personality profiles. Think about which profile fits your own most closely.

Frugal Freddie

Frugal Freddie makes a modest salary and puts some money away every paycheck with an automatic savings plan. Freddie doesn�t exactly live life in the fast lane. He does charge the VISA for his annual vacation or occasional partying but he pays his bills on time. He likes the idea of buying a house as an investment, and he�s got some money stashed in a Certificate of Deposit for a Down payment.

Fred�s Profile? Excellent.

Freddie could qualify for a first-time homebuyer loan with a low Down payment and reasonable terms. In order to figure out what Freddie can afford, he can use what lenders call the 28/36 guideline. Generally speaking, a lender will recommend keeping his monthly Mortgage payment to less than 28% of his monthly Income before Taxes, and his total monthly Debt (including house payments, car loan, etc.) under 36% of his Income. Is it okay to have some Credit card Debt? Absolutely, in fact it may help to establish a positive credit rating. But what if you have a LOT of Credit card Debt? No harm in that as long as you pay your bills on time, right? NOT necessarily�from a lender�s perspective, it�s unwise to push your cards to their Credit limits. You can improve your chances by paying down that Debt and putting some money away.

Sloppy Stuart

Stu’s a good guy with a steady job. He’s just a little disorganized, that’s all. He keeps the stack of bills to be paid in an old plastic napkin holder at the back edge of the kitchen table. He’s usually on time paying his bills but occasionally forgets. He’s not too worried about his Credit rating, though. "What difference will a few days make?" is Stu’s philosophy.

Stuart’s Chances? Fair to good.

It’s okay to be a few days late once in a while. Nobody’s perfect, and no lender expects you to be. But now that you want to be a homeowner, it pays to be prompt. Depending on how late Sloppy Stuart has been, and how often, it could start to hurt his Credit rating. You want your bill filing system to be better than Sloppy Stuart’s, so you don’t end up missing a payment. On the other hand, if you’ve had legitimate reasons for being late, be sure to explain the reasons honestly and a lender will give you a fair shake in qualifying for a loan. The worst scenario is you’ll spend a year or two paying your bills on time and boosting your Credit rating.

Will and Wendy Wannabe

Will and Wendy want to be homeowners. They make a good combined salary and always pay their bills on time. But the sad fact is the Wannabes don’t have much money set aside for the Down payment on a home. "How can we ever afford to buy a house and have a family?" they say. "By the end of the month, all we have is a bunch of ATM receipts but it’s hard to remember where the money went."

Will & Wendy’s Chances? Good to Excellent.

Excellent if they start Budgeting and saving, that is. Not having a stash of cash for a Down payment doesn’t mean they can’t buy a house. They could qualify for a first-time homebuyer loan with a very low down payment. If they really want to get serious, they’ll do a self-audit and keep track of everything they buy with cash or Credit (eating out, theater, or vacations). Then they’ll set a maximum monthly spending limit for eating and entertainment and stick to it, saving any additional cash for a Down payment on a home.

Practical Paula

Practical Paula has plans and a dream. She’s been an honest, hard working truck driver for two years, hauling a regular load of pineapples between Paducah and Portland. But, now, after all of that time on the road, she’s tired of the travel and has decided to make a career change and settle down. She plans to take community college courses, become a computer programmer and buy a condo. She’s got some money saved, too.

Paula’s Prospects? Good, after a year or so.

Loan underwriters like evidence of job stability. They tend to be wary of people making a major career change. Paula might want to rent for a while in Provo and establish herself in programming. But her savings are a point in her favor. A local lender will appreciate the job growth potential of her career choice of computer programming. Also, many Condominiums and townhouses are less costly than detached, single-family homes. So she should be able to qualify for Mortgage, after a year or so in a stable job, and find a lender to help bring her dream within reach.

Lender Favorites

The data lenders love to look at are:

• your job history
• if you pay your bills on time
• your overall Debt; and,
• whether you have money saved for a Down payment