When you apply for a mortgage loan, you expect your lender to pull a credit report and look at whether you've made your payments on time. What you may not expect is that they seem to be more interested in your FICO score.
What is a FICO score? Each time your credit report is pulled, it is run through a computer program wit a built-in scorecard. Points are awarded or deducted based on certain items such as how long you have had credit cards, whether you make your payments on time, if your credit balances are near maximum, and assorted other variables. When the credit report prints in your lender's office, the total score is displayed. Your score can be anywhere between the high 300's and the low 800's.
Lenders wanted to determine if there was any relationship between these credit scores and ehether borrowers made thir payments on time , so they did a study. The study showed that the borrowers with scores above 680 almost always made their payments on time. Borrowers with scores below 600 seemed fairly certain to develop problems.
As a result, credit scoring became a more important factor in approving mortgage loans. Credit scores also made it easier to develop artificial intelligence computer programs that could make a "yes" decision for loans that should obviously be approved. Nowadays, a computer and not a person may have actually approved your mortgage.
In short, lower credit scores require a more thorough review that higher scores. Often, mortgage lenders will not even consider a score below 600.
Some of the things that affect your FICO score are:
- delinquencies
- too many accounts opened within the last twelve months
- short credit history
- balances on revolving credit are near the maximum limits
- public records, such as tax liens, judgments, or bankruptcies
- no recent credit card balances
- too many recent credit inquiries too few revolving accounts
FICO actually stands for Fair Isaac and Company, which is the company used by the Experian credit bureau to calculate credit scores. Trans-Union and Equifax are two other credit bureaus who also provide credit scores.
Credit scores can affect more than whether your loan gets approved or not. They can also affect how much you pay for your loan, too. Some lenders establish a "base price" and will reduce the points on a loan if the credit score is above a certain level. There are other lenders who do it in reversal. They establish their base price, but instead of reducing the cost for good FICO scores, the "add-on" costs for lower FICO scores. The results from either method would work out to be approximately the same interest rate. It is just that the second way "looks" better when your are quoting interest rates on a rate sheet or in an advertisement.
If you plan to purchase a home in the near future - it is critical to start with your credit report. Find out if you are ready or need more time to repair it. Plese contact me: bo-decor@cox.net and I will put you in touch with reputable mortgage lender who will guide you through the process.
For more information or please go to: www.BestOklahomaHomes.com
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