Barbara's Blog - Understand Your Credit Scores

By
Real Estate Agent

You may not believe this but lenders actually do want to give you a mortgage. As much as they do, they want to minimize any risk to them. They best way for them to ensure little to no risk is by using credit scores as part of their lending requirements.

There are three companies that compile credit scores, Equifax, Experian, and Trans Union, each calculate scores differently with their own formulas and criteria. For example:

·         Equifax Beacon 5.0 Facta: scores range from 334 to 818

·         Experian Fair Isaac V2: scores range from 320 to 844

·         Trans Union FICO Risk score Classic 04: scores range from 309 to 839

Simply put, your credit score is a number that is representative of information on your credit report. Information such as if you pay your bills on time, how much credit you are holding, how much you owe, your creditors, paid accounts and of course derogatory credit information including judgments and liens and a list of credit inquiries.

So, getting back to mortgages. When you sign a mortgage application, you give the lender permission to check your credit report. That plus the financial information you provide in the application helps the lender decide whether or not to lend you money and at what interest rate.

The higher the score, the better your loan terms will be. The lower the score, the higher the interest rate, if they decide to take a chance on you.

When a lender pulls your credit report, they usually generate a report that will only highly key factors about your credit such as:

·         Too many inquiries in the last 12 months

·         Time since most recent account opening is too short

·         Proportion of loan balances to loan amounts is too high

·         Too many accounts with balances

·         Amount owed on revolving accounts is too high

 

All is not lost if you are declined for a loan, You can seek help with repairing or correcting your credit score. There could be wrong information on your report that should be taken off the report. If you ask, the lender may help by telling you what you need to do to raise your credit score.

There are companies out that can help you repair your credit, but be careful not to fall for a scam. But you should know that you have the right to get a free copy of your credit report from each of the credit reporting agencies mentioned above at FreeAnnualReport.com and you can contact creditors and the agency about disputing items on your report yourself.

Definitely work on rebuilding or repairing your credit by paying more than the minimum, making payments on time and keeping your debt low and within your ability to pay.

Comments (2)

David Shamansky
US Mortgages - David Shamansky - Highlands Ranch, CO
Creative, Aggressive & 560 FICO - OK, Colorado Mtg

Hi Barbara,

good post with quality info about lending. Many times people allow a denial to put them into a box thinking they cant qualify for a loan when its merely an item or two. Even if more is necessary there always is a way and when you have time, some money and a plan it will make anything possible

Oct 30, 2014 09:19 AM
Karen Fiddler, Broker/Owner
Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA
Orange County & Lake Arrowhead, CA (949)510-2395

Good information for consumers. And I like that you tell them not to panic if they are declined for a loan....a little effort and adjustment and credit can improve.

Oct 30, 2014 09:35 AM