Exchanges and Credit Scores

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                       Credit scores can make or break an exchange

You are in the process of making an exchange and a Note needs to be held by one or more of the parties involved in the exchange.  To make everyone comfortable in holding a Note you are wise to to do a credit check on the Individuals, Partnership, or Corporation.  With the computer and today's technology and thanks to the Internet this will be very easy to check the FICO score.

    What credit scores mean

A ( FICO ) score is derived in part from a borrower's past credit history, the credit bureau has software and services which take the borrower's history and measure it against a database of habits in the general borrowing population. That, in turn, determines whether the borrower's tendencies match those of borrowers who default on debt, declare bankruptcy or end up in other types of financial trouble.

Five characteristics -- determine how high a score will be and they separate the cream of the crop from everyone else.

Examples in descending order

1. Past delinquency. -- People who have failed to make payments in the past tend to do the same in the future.

2. The way credit has been used.-- Anyone who is maxed out or close to the limit on a credit card is considered a greater risk than someone who uses their credit cards responsibly and doesn't look at the high credit line as a license to print money.

3. The age of the credit file.-- This assumes that someone who has had credit for a long time is less risky.

4. The number of times a person asks for credit.-- The systems looks at those who have initiated several requests for credit cards, loans or other debt instruments over a short period of time. This always is a detriment to the borrower.

5. A customer's mix of credit.-- If the borrower only has a secured credit card they are generally riskier than the borrower who has a combination of installment and revolving loans.
(On installment loans, a person borrows money once and makes fixed payments until the balance is gone, while revolving borrowers make regular payments, each of which frees up more money to borrow.)

The scoring system looks for patterns, and takes into account when a problem occurred and whether it is part of an ongoing problem.

Credit scores are compensatory in nature, If a borrower has had a charge-off on their credit file and if that charge-off happened, several years ago, and they have been able to maintain their credit over that period of time, that borrower is going to be judged differently then if they just had a charge-off, six months ago.

    Defining a good score

A ( FICO ) score higher than 660, is a good sign that everything's fine. Falling between 620 and 660 is still pretty good, below 620, however, will be somewhat risky and you may want to consider something with equity to make this exchange work.

Questions, comments or suggestions on any of these articles, Send us an

or call Wayne H. Wagie 786-326-4747

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