9th July 2013
Your credit record is compiled by 3 companies, Equifax, Experian and Trans Union. They are called credit repositories. The credit report from each repository can come out slightly different. When we run a credit report for your mortgage we pull a merged report which draws from all 3 repositories.
Your credit report is a record of all the credit you’ve built up over your lifetime. It gives a list of all the accounts you currently have, as well as accounts that you have closed. It shows the balance of the accounts, the credit limit on each account, the payment history showing late payments as 30, 60, 90 or over 90 days past due, and any past due balance. It also has a record of any bankruptcies, judgments, and foreclosures you may have had (these will eventually drop off the report in either 7 or 10 years, depending on the type, but you can usually buy a home long before they’ve dropped off).
There is a tremendous amount of information on your credit report, but the first thing most lenders focus on now is what’s called the FICO score (Actually, there are 3 FICO scores, one from each repository. We generally use the middle score). The FICO score is a computer model that weighs the overall risk in your credit profile. The idea behind scoring is that they measure the likelihood of a customer’s defaulting on a loan. This, for the most part, takes the human out of the approval process and makes the system more automatic. There are some big advantages to this. It’s through the use of this system that you can go into Best Buy, apply for a credit card and be automatically approved for financing. It works the same way with mortgages. This is why we can offer full pre-approvals in just a few hours.
The scores can range from a low of 350 to a high of 850, but it’s rare to see scores at either extreme. Most people’s scores are in the 600s and 700s. Approval depends on other factors besides credit, but a high credit score will go a long way toward helping your situation. For conventional loans, if your score is 740 or above, it’s considered excellent credit. There are options for borrowers with lower credit scores, but pricing hits are added. But even if your credit scores are much lower there are still options. If your credit score is lower though, it means that you may have a harder time getting approved, and the interest rate will be higher than if your credit score were higher. This is one reason it’s important to check your credit early in the process, before you’re ready to start looking for a home. This way if there are mistakes or problems, you have time to work on the credit and improve your scores. With time and some effort, there are ways you can raise your scores.
With help understanding what your scores mean for you, give me a call.
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