Before giving you a mortgage, lenders want to make sure they’re not taking too big of a risk. So, they use your credit score to decide whether to lend you the money.
Three consumer reporting agencies compile your credit score and each one calculates scores differently. This is the number that shows whether you pay your bills on time, how much you owe creditors, and even how many inquiries you have from lenders, landlords, and employers. It also shows derogatory information such as a bankruptcy and liens.
Equifax: scores range from 334 to 818.
Experian: scores range from 320 to 844.
Trans Union: scores range from 309 to 839.
Whether it’s a home loan, car or personal loan, you have to give permission to let the lender pull your credit report so a decision can be made whether to loan you the money and also determine an interest rate based on your credit score. The higher the score, the better chances you have of being loaned the money and of getting a better interest rate.
Once a mortgage lender reviews your credit score, they look for several things to determine whether to extend credit to you. Things that impact your credit score and could keep you from getting additional cash include:
-- Too many inquiries in the last 12 months.
-- Time since most recent account opening is too short.
-- You owe too much, even on revolving accounts, and you have too many accounts with balances.
-- The proportion of your loan balances to loan amounts is too high.
Based on this information, if your lender decides to turn you down for a loan or charge you a higher interest rate, there are a few things you can do.
First, talk to your lender and ask for suggestions on repairing or correcting your credit scores.
Second, get a copy of your credit report from each of the national consumer credit reporting agencies and look to see if there’s any derogatory data that doesn’t belong to you such as an account with the wrong balance, or maybe a lien that’s still showing up but shouldn’t. Under federal law, you’re allowed a free copy of your credit report from each of the national consumer credit reporting agencies once a year.
If you find an error on your credit report, you’ll have to correct the information yourself with each agency. It may take a few weeks.
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realtytimes.com contributed to this article.
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