Credit- What, Where, How and Why?
Congratulations!….You’ve decided you’re ready to buy a home, and you’ve heard horror stories about CREDIT- nightmares that you’d rather avoid. Well, the first step to being at peace with your credit is to understand it.
Mortgage credit scores (which can affect not only your approval but also your loan rate) are provided by the 3 credit bureaus, Experian, TransUnion and Equifax. Your middle score requirements are generally 640 or more for approval, and 720 or greater for the best pricing on your loan. It’s a good idea to check with these providers periodically to make sure nothing is amiss or being reported in error.
Creditors, landlords (many landlords now report your rental history to the credit bureau) and yes, mortgage lenders use your credit score to assist in the evaluation of your loan request. It is now the primary source that creditors utilize today before deciding if you, as a borrower, are a safe credit risk. So how does your mysterious credit score evolve? Just as you can probably imagine, the credit score is based generally on how well you pay your obligations and how conservatively you use debt and credit limits.
Your personal credit score evolves from the activity in the following areas of your financial transactions:
Payment History: Have you paid your bills on time? Late payments, chargeoffs and bankruptcies lower your credit score.
Balances Owed: Do you owe more than ½ of your overall credit limit? If so, work to pay balances down to improve your credit score.
Term of Accounts: If you’ve only had, say, a credit card or a car loan for a few months, your good pay history isn’t reflected in your credit score until that creditor has been reporting your activity for 10-12 months.
New Credit Inquiries: Frequent unrelated credit inquiries to your history by potential creditors could lower your credit score. Keep them to a minimum.
Mixed use of Credit: It is best to have some variety in your active accounts, for example instead of just having 4 retail credit cards, you could have two credit cards, an auto loan, and maybe a personal line of credit or….mortgage!
* http://www.pueblo.gsa.gov/cic_text/money/creditscores/your.htm
Comments - 4
Hi sherry, you mentioned that landlords are reporting rental history to the bureaus. Do you have more information about this? Of course if a landlord obtains a judgment against the tenant that will likely turn up on the public record search, but actual rental history? Never heard of it.
By Jared on 23 January 2012
Hi Jared, yes it is becoming more common when we review credit. Some landlords actually have a trade line added to the renter’s credit report and it shows when the lease expires as well as the monthly lease amount. Any creditor with a signed contract (like a lease) can add a trade line and pay history to a credit report. Now I have not seen individuals, but property management companies I have seen. Thanks for your comment.
By Sherry Carney on 24 January 2012
Exactly! Credit scores are more important than ever to the homebuyer….There are great homes out there begging for the credit approved buyer. Its not as hard as you think to keep your credit score strong! Call us anytime for an analysis of your personal credit history.
By Sherry Carney on 27 March 2012
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This is great information Sherry! I definitely learned a lot. Thanks!
By Jenny Williams on 16 June 2011