Your credit history is very important to lenders and mortgages in determining whether you get a loan. That is why your credit report is so important. A skilled lender is able to read what it means. A credit report shows how many accounts you have open, how much you owe, how long they have been open, what available credit is available. But the most important item is your actual payment history. How many times in the last two years have you been late on your accounts? Do you always pay on time? Do you let accounts go to collection? Have you had Bankruptcy, foreclosure, or judgements? These are the items that are important in determining whether you are credit worthy.
This is what the lenders are looking at. The credit agencies then assign a credit score based on a formula they have devised. In 2009 the mortgage companies want you to have a 620 score.
The lenders usually only cares about the last two years history. Though FHA loans only want you to have a one year of clear credit. The better the history the better your credit score. They like to see two or three open lines of credit with good payment history. That is why you sometimes do not want to close accounts down. Sometimes older people who pay everything cash have a tough time getting credit because they have no credit history. The key is start getting credit by a secured credit card or being an authorized user on somebody else's credit card. Or get a co-signer on a loan. You need to have credit history.
The credit report will show how many times you are 30 days late, 60 days late, and 90 days late and when they happened. A credit report is like a report card of your financial responsibility. The higher the grade you get the better the rate and the easier to get a loan. A poor score will cost you thousands of dollars in higher interest rates.
Collections, judgements, bankruptcies, and foreclosures are bad marks on your credit history. It is better to not have them on your credit report at all. Even if you pay them off sometimes your credit score will not go up.
The FHA is generally more flexible than conventional lenders in its qualifying guidelines. In fact, the FHA allows you to re-establish credit if:
- two years have passed since a bankruptcy has been discharged
- all judgments have been paid
- any outstanding tax liens have been satisfied or appropriate arrangements have been made to establish a repayment plan with the IRS or state Department of Revenue
- three years have passed since a foreclosure, short sale, or a deed-in-lieu has been resolved
It is good to get a FHA loan because it allows border line credit history and gives you a good rate. . Email me to see if you qualify for a FHA loan.
I hope this helps you start thinking about what you need to do to get your credit on track. A good credit history will help you in the long run.
Russ Ravary your Metro Detroit real estate agent
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