Your credit report
The credit report
A credit profile refers to a consumer credit file, which is made up of information provided by the three main credit repositories; Equifax, Trans Union and Experian. It provides us with a picture of how you handled prior loans and financial obligations. There are five categories of information on a credit profile:
Identifying Information
Employment Information
Credit Information
Public Record Information
Inquiries
Information that is NOT reflected in your credit profile includes: race, religion, health, driving record, criminal record, political preference, and income.
If you have had credit problems in the past, be prepared to discuss them openly and honestly with a mortgage professional who will assist you in writing a letter of explanation. Knowledgeable mortgage professionals know there can be legitimate reasons for certain credit problems, such as unemployment, unexpected illness or other financial difficulties. If you had problems that have been corrected and your payments have been on time for the last year or more, these items may be overlooked.
Credit scoring is a statistical method of assessing the credit risks associated with a loan applicant. The scores are based on the following items: past delinquencies, derogatory payment behavior, current debt levels, the balance of an account in relation to the amount of credit available, credit history, types of credit and number of recent inquires.
A few years ago this was a relatively new concept in the mortgage industry, but by now most people have heard of credit scoring. The most common score is called the FICO score. This score was developed by Fair, Isaac & Company for the three main credit Bureaus; Equifax (Beacon), Experian (formerly TRW) and Empirica (TransUnion).
FICO scores are simply repository scores meaning they ONLY consider the information contained in a person’s credit file. They DO NOT consider the borrower's income, savings or down payment amount. The scores are useful in directing applications to specific loan programs and to set levels of underwriting, such as streamline, traditional or second review, but are not the only factor involved in determining which loan program you will qualify for.
Many people are skeptical about the accuracy of FICO scores. Scoring has only been an integral part of the mortgage process for the past few years. However, the FICO scores have been used since the late 1950’s by retail merchants, credit card companies, insurance companies and banks for consumer lending to help expedite the approval process. The available data from large loan portfolios, demonstrates their ability to predict consumer behavior and that relying on credit scores does work in most cases.
The following items are some of the ways that you can improve your credit score:
Pay your mortgage and other bills on time.
Keep balances well below the limit on credit cards.
Limit your credit accounts to what you really need. Most accounts that are no longer used should be formally canceled.
Check that your personal information is accurate.
Be conservative in applying for credit and make sure that your credit is checked by reliable parties and only when necessary.
A borrower with a low-mid score of 720 and above is considered an A+ borrower. An application for a borrower with a high score will be put through an "automated underwriting" system in the early stages of the process and an approval will be issued within minutes. Borrowers in this category are typically eligible for the best interest rates and their loan transaction can close earlier in most cases.
A score below 720, but above 680 is considered an A loan and usually requires about the same amount of processing time. However, the automated approval could come back with at a slightly higher pricing tier and/or an indication that the applicant does not meet the requirements of select loan programs.
A borrower with a score less than 680, but greater than 620 is considered A- and we may need to have an underwriter take a closer look at the complete loan file in order to determine the risks involved. Supplemental documentation may be required before final approval is issued. Borrowers with this credit score may still be able to obtain "prime" market pricing, but the loan may take a little longer to close.
Borrowers with credit scores below 620 are normally considered to be a candidate for a "subprime" loan (sometimes referred to as BCD loans). Although the approval process can be fairly simple and swift, this is due to the fact that we are now dealing with a whole new world of mortgage investors. Of course, since these are typically loans that are held onto by the investor (portfolio loans), the interest rate, loan programs and overall terms/conditions are considerably less attractive.
All things being equal, when you have derogatory credit, all of the other aspects of the loan need to be in order. Equity, stability, income, liquidity, documentation and assets all play a larger role in the approval process. Recent mortgage late's and bankruptcies or foreclosures are the most harmful, and credit patterns, such as a high number of recent inquiries or more than a few outstanding loans at any given time may signal a problem.
Your credit score is one of the most important components in your mortgage search. It can have a huge effect on the rate and program you qualify for. No matter what your credit score is, we probably have a program that will work for you.
Credit scores are determined by the three credit agencies that accumulate your past payment history. Each uses it's own formula for determining your score. Knowing how they determine your score can give you the ability to make minor changes that can improve your credit. Sometimes it's just a matter of knowing your report and making a few inquiries.
I am happy to offer help to my customers with their credit. The information below should help you with an overview.
We will help you get the best loan at the lowest cost, with quick & easy closings.
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