Credit is an important factor in having the ability to obtain a mortgage or other loan for a big ticket item. To most people how a “credit score” is determined is a mystery. Most people do not know what their score is unless they apply for a loan or run a report through one of the credit unions.

What is the purpose of a credit score? Having a scoring method has advantages because it weighs many factors and can provide an objective picture for the financial institutions seeking information about you. These advantages are being able to obtain a loan fast, fairer credit decisions, poor credit decisions from your past will not haunt you forever, more credit is available making credit rates lower overall.

According to FICO the 5 categories that DO affect credit score are: 1) Payment history; 2) Amounts owed; 3) Length of credit history; 4) New credit; and 5) Types of credit used. Please click here for more specific information on these categories.

According to FICO, the following information does NOT affect your credit score: race, age, color, religion, national origin, sex and marital status, salary, occupation, title, employer, date employed or employment history, where you live, any interest rate being charged on a particular credit card or other account, any items reported as child/family support obligations or rental agreements, certain types of inquiries (requests for your credit report from employers, promotional inquiries, or administrative inquiries from lenders, any information that is not proven to be predictive of future credit performance, whether or not you are participating in a credit counseling of any kind.

What is recommended to optimize your credit score: 1) Pay your bills on time; 2) If you have missed payments, get current and stay current; 3) Be aware that paying off a collection account will not remove it from your credit report.; 4) If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor; 5) Keep balances low on credit cards and other “revolving credit”; 6) Pay off debt rather than moving it around; 7) Don’t close unused credit cards as a short-term strategy to raise your score; 8) Don’t open a number of new credit cards that you don’t need, just to increase your available credit; 9) If you have been managing credit for a short time, don’t open a lot of new accounts too rapidly.

When establishing new credit here are some tips: 1) Apply for and open new credit accounts only as needed; 2) Have credit cards - but manage them responsibly; 3) Note that closing an account doesn’t make it go away.

CNN reports in their money watch how some of the credit regulations are changing and could positively affect your credit score.

As we look back at what was the last half of 2007, from a real estate perspective, on a national level things were not all that good. The sale of new construction and existing homes was down, due in large part to the sup-prime mortgage mess. Part of the current real estate cycle is a return to balance and 2008 is the year for exactly that. This Washington Post article (registration required) gives a nice retrospective on what was 2007 and provides a positive outlook for 2008. The latest quarterly home-price data from the Office of Federal Housing Enterprise Oversight found that while significant declines have occurred in dozens of speculative markets in the past year, prices were flat or up in 204 of the 287 metropolitan markets surveyed.

Real estate in Cincinnati is one of those markets listed where appreciation has held very slow and steady for years. The beginning of 2008 is going to be a great time for new homeowners to come in and purchase first homes while interest rates are still reasonable. There is a tightening of credit, but those who qualify will enter a buyers market and become homeowners for nearly the price of rent. Purchasing a a larger house in a buyers market is always a good idea. You may not get top price for your current home but you will not pay top price for your future home either. The key is to have a real estate agent who understands the economics of the market and can help you make wise long term investments.