The Doorway to Good Credit
Turning The Key To A Strong Credit Score And A Mortgage To Buy Your Home
A Good Credit Record Takes you Across the Threshold to Homeownership
If youre planning to look for and buy a home any time soon, your real estate agent will recommend that you look carefully at your credit record to assist you through the financing process when buying your home.
Your credit record includes how well you have handled credit in your past and how you use it right now. Your credit record is kept electronically by each of three private companies. These companies are Equifax, Experian and Trans Union.
A credit report is a listing of the information in your credit record at one of these companies. It shows your debts and payment history with people and companies who have loaned you money, such as banks, card companies and department stores. It shows whether you pay bills on time and whether you pay the proper amounts due. Your credit report also shows any history of tax liens, bankruptcies, etc., even if any of these have happened several years ago.
It is important for you to understand how significant your credit record is to getting a mortgage. Before you even meet with a mortgage lender, you should get copies of your credit reports and review them. A real estate agent who is a REALTORŪ is ready to work with you throughout the home buying process-from helping you obtain and review your credit reports to providing helpful hints on qualifying for a mortgage-so youll be ready to buy the home you select.
One of the first things a mortgage lender will do when you ask for a mortgage loan is to order a copy of your credit report. As part of the credit report, lenders often get a credit score. A credit score is a computer-generated number that tells them how likely you are to repay your debts.
A credit score is calculated by analyzing all the pieces of information in your credit record and summarizing them in a number. Your credit score is important! It will be used along with your credit report and other information from your mortgage application to determine whether you will get a mortgage to buy or refinance your home. Your credit score also may be used to determine the interest rate you get on your mortgage.
Pay attention to your credit and keep it on the right track. A good credit record will give you a good credit score. And thats good news when you go out with either an agent who is a REALTORŪ.
The most commonly used credit score today is known as a "FICO"score. A company named Fair, Isaac & Co. developed a mathematical way to look at factors in your credit record that may affect your ability and willingness to repay a debt.
These factors can include your record of repaying loans, i.e., student loans, car loans and credit card bills; any public records you might have, like tax liens and bankruptcies; how often you apply for installment loans and new credit cards; and how much you actually owe. For example, if you charge up to the limit on your credit cards even if combined they don't seem to add up to a lot of money this might hurt your credit score. Or, if you have recently applied for several credit cards, including department store payment plans or credit cards even if you haven't begun to use them yet your credit score might be affected negatively. However if you show a pattern of managing your credit wisely, such as keeping credit card balances low or paying your bills on time consistently, your credit score will be affected positively.
Mortgage lenders look at other information besides your credit score before deciding whether to make you a mortgage loan. They look at
All of these factors combined together make up your "loan application profile."
After collecting this information, the lender evaluates it to decide whether to approve the home loan. Until recently, this was done manually by reviewing each piece of information separately. Today, many lenders us automated underwriting, a computer-based process that evaluates the information easily, objectively and within minutes.
The lender then views the electronic recommendation along with other information gathered to create a full picture of your loan application and make a final decision about your ability and willingness to repay your loan.
Credit scores and automated underwriting are widely used today because they speed up the mortgage approval process for consumers. Whats more by using credit scores, mortgage lenders treat each person objectively because the same standards apply to everyone. Credit scores assess each factor equally for every consumer, every time. They do not include race, religion, national origin gender or marital status as factors. Credit scores are blind to demographic or cultural differences among people.
1 The Front Door Pay your Bills on Time
How you've paid your bills in the past is usually the best indicator of how you'll pay in the future. Be sure to pay at least the minimum amount required by the date it is due on your account statement or invoice. You can always pay more but you should never pay less than the minimum. Remember being late on a payment is a negative mark on your credit record, even if you make up the payments later.
If you don't pay your bills on time, begin doing so immediately! Credit scores emphasize your most recent payment record.
2 The Side Door -- Keep Credit Card Balances Low
Think about closing down accounts you never use and try not to draw down too much of your remaining credit lines. Don't apply for too many loans or too many credit cards. This might be interpreted as a sign that you can easily get in over your head on payments you owe.
You need to have some credit history to have a credit score. Sometimes having a very limited credit record can have a negative effect on a credit score. If you rarely or never borrow money or use a credit card, consider applying for a credit card and using it carefully, paying off the debt each month as required. But keep your overall debt at a reasonable level relative to your income.
3 The Gateway -- Make Sure Your Credit Records are Accurate and Protect Them
It's important that you review your credit reports from each of three private companies Equifax, Experian and Trans Union at least once a year to make sure they are right. Your credit record and therefore, your credit report may vary from one company to the other. You don't want your credit score or mortgage application to be based on incorrect information in any of your reports. Simply contact all three companies or "national credit repositories" as they are often called listed below. If you've been denied credit, you can get your credit report for free by following instructions in the written notice you received denying you credit. Otherwise, you can receive a copy for a minimal fee.
If you believe that any one of your credit reports contains mistakes and you wish to dispute or change the mistake, contact the national credit repository that developed the report. Under the Fair Credit Reporting Act (FCRA), the repository must complete and investigation of your disputed items within 30 days and provide you written notice of the results of the investigation within five days of its completion including a copy of your credit report if it has changed based upon the dispute. The Federal Trade Commission (FTC) is responsible for enforcing FCRA. The FTC also publishes consumer related credit brochures where you can obtain additional information on credit reports. To contact the FTC, call or write:
Federal Trade Commission
I hope that this information has been helpful to you. If you have questions about anything at all, don't hesitate to contact me.