Credit Scoring RATE

Transcription

1 Credit Scoring RATE

2 Your credit score is a major factor that will be considered by the lender when they review your loan application. They want to know what your credit history is and whether you have the ability to pay back the loan you are requesting. In short, good credit translates into lower rates and/or fees for the homebuyer and less risk to the lender. Credit scores can range between 300 to 850. The higher the client s score is, the less likely they are to default on their loan. We will run a credit report to determine what your credit score is and if necessary, we can point out some simple ways to help you improve your credit score. If you need assistance with credit repair, a GSF Loan Specialist will set you up with one of our in-house credit assistance programs. Once you complete a loan application and enter into the loan process, you should not run up your charge cards or make any major purchases such as appliances or furniture. Also, you should not apply for any other type of new credit, as this could negatively impact your credit score. If you do have a low credit score, you many still be able to obtain financing. While you may not get the interest rate you had hoped for, it is an opportunity to start building up your credit again. Once you begin making mortgage payments on time and in full, your credit standing will improve and we can seek to refinance you at a lower rate. First, the 3 major national credit bureaus are: Experian (XP), TransUnion (TU), and Equifax (EF). Their functions include: 1. Repository--- they are huge holders of data; information about you and millions of other people. 2. Credit Reporting Agency (CRA)--- these repositories get their data when creditors and courthouses report to them.; and when you pull someone s credit report, they in turn report that data to the entity that requested the information. What Is Important About My Credit? 1. What is a Credit Score? It is a number that, at a glance, helps lenders determine how likely you are to make your proposed payments on time. 2. How is it generated? A score is only created when you pull someone s credit file, and all the data retrieved is fed through a complex mathematical formula. As a person s data at the repositories change, their score would also change---positively or negatively. 3. Why are scores different? Fair Isaac Corporation (FICO) created the mathematical formulas that generate the score BUT... There are different score formulas depending on what you are applying for.. a mortgage, credit card, auto loan, auto insurance, or even if you are not applying for anything at all and get a consumer score directly from one of many websites that advertise scores these days. Fair Isaac sold their original formulas to XP, TU and EF, which in turn, slightly altered them based on their own studies and analysis. The 3 bureaus typically don t have the exact same data on a consumer. So, if the data is different or has changed, the scores will also be different.

3 Components of Credit Scoring Credit scores are made up of five components, which are listed below in order of importance. 1. PAST PAYMENTS-35% IMPACT Paying debt on time and in full has the greatest positive impact on your credit score. Delinquencies, such as late payments, that have occurred in the last two years carry more weight than older items. 2. OUTSTANDING CREDIT-30% IMPACT This factor marks the ratio between the outstanding balance and available credit. Ideally, the consumer should make an effort to keep balances as close to zero as possible and definitely below 30% of the available credit limit at least 2-3 months prior to trying to purchase a home. 3. CREDIT HISTORY-15% IMPACT This portion of the credit score indicates the length of time since a particular credit line was established. The longer you have had a line of credit open, the stronger it will look to a lender. 4. TYPE OF CREDIT-10% IMPACT It is recommended to have 1-2 open major credit card accounts. A mix of loans, such as auto, credit cards and mortgage loans have a more positive affect on your credit. 5. INQUIRIES-10% IMPACT This percentage of the credit score gauges the number of inquiries made on a consumer s credit within a twelve month period. Each hard inquiry can hurt your credit score. If you pull your credit report yourself, it will have no effect on your score. Contact us today to find out about our in-house credit monitoring program! RATE

4 What Happens If I Have A Low Credit Score? Here is a short list of how much low credit scores can cost when it comes to a mortgage: 1. You Will Pay Higher Interest Rates A better credit score means a better interest rate. You will pay a lower interest rate on your mortgage and will have to put less down up front. 2. You Will Be Subject To Higher Pricing Consumers with credit score of less than 720 will be subject to a credit score based fee known as Risk Based Pricing. Loan terms and fees are sometimes dictated by your credit score. 3. You Will Pay More For Private Mortgage Insurance (PMI) PMI is insurance that mortgage lenders require from most homebuyers who have less than a 20 percent down payment on their property. Does My Credit Score Affect Insurance Cost? It s not a surprised when your loan officer asks for your social security number as a thorough credit check is standard when applying for a loan. However, many consumers are caught off-guard when a homeowners insurance agent asks for their social security number. Soft Pull It is important to know that when an insurance company runs your credit, they are actually performing what is called a soft pull. This accesses only your credit score and is not reflected as an inquiry on your credit report. Hard Pull A hard pull is ran by a lender, for example and does show up on your credit report as an inquiry. Since credit inquiries from hard credit checks can hurt your overall score, it s good to limit these types of credit checks when shopping for a mortgage. However, since insurance carriers can only perform a soft credit check, feel free to shop around for multiple insurance quotes without worrying about hurting your credit rating. source: Keeping Current Matters Blog What If I Don t Have Any Credit? If this is the case for you, start by: opening small lines of credit that report to all three major credit reporting agencies: Equifax, Experian and TransUnion open a checking and savings account open a credit card through your bank or credit union once you have an established history make purchases that can easily be paid off If you do not have established credit, you are not completely out of luck. Some lenders will pull a report that will show them whether or not customers pay their rent and utility bills on time. That is why it is extremely important to pay these day-to-day living expenses on time. In addition, your ability to hold a steady job will improve the likelihood of being approved for credit.

5 What Should I Do During The Loan Process? When you fill out a credit application, we run a credit report for the underwriter. Each lender and each loan program has different guidelines they must follow. You should not do anything that will have a negative effect on your credit score while your loan is in process, including shopping for new furniture and appliances. A couple hundred dollars can set you back from getting approved for your new home. You ll want to remain in a stable position until the loan closes and give us the opportunity to help you lock in the best interest rate we can possibly get for you. DO JOIN A CREDIT MONITOR PROGRAM so that you can monitor your credit from shopping to closing. A GSF loan specialist will be able to help you set up with our in-house credit monitoring program, which is free of charge. DON T APPLY FOR ANY NEW CREDIT. This will show up as an inquiry on your credit report and does not look favorable when getting a loan. DO PAY ALL BILLS ON TIME. If you do not have perfect credit, some lenders can pull a report that shows whether or not customers pay their rent and utility bills on time. DON T PAY OFF COLLECTIONS OR CHARGES during the loan process. Unless you can negotiate a delete letter, paying collections will decrease the credit score immediately due to the date of last activity becoming recent. DON T MAX OUT OR OVER CHARGE ON YOUR CREDIT CARD ACCOUNTS. In the matter of fact, DON T charge on your credit cards at all if possible. This is the fastest way to bring your credit score down. Keep your credit card balances below 30 percent of their available limit at ALL times during the loan process. DON T CONSOLIDATE YOUR DEBT ONTO 1 OR 2 CREDIT CARDS. It seems like it would be the smart thing to do, however, when you consolidate all of your debt onto one card, it appears that you are maxed out on that card and the system will penalize you. DON T CLOSE ACCOUNTS. If you close a credit card account, you will lose available credit and it will appear to FICO that your debt ratio has gone up. Also, closing a card or installment account will affect other factors in the score such as length of credit history. DON T ALLOW ANY ACCOUNTS TO RUN PAST DUE---EVEN 1 DAY! Most cards offer a grace period, however, what they don t tell you is that once your due date passes, that account will show a past due amount on your credit report. DON T DISPUTE ANYTHING ON YOUR CREDIT REPORT once the loan process has started. When you send a letter of dispute to the credit reporting agencies, a note is put onto your credit report and when the underwriter notices items in dispute, in many instances, they will not process the loan until the note is removed and new credit scores are pulled. Why? Because in some instances, credit scoring software will not consider items in dispute in the credit score---giving false data to the lender. Contact us today to find out about our in-house credit monitoring program! RATE

6 DON T ADD ACTIVITY TO YOUR CREDIT REPORT. This includes things like co-signing on a loan or changing a name or address with the bureaus. The less activity on a report during the loan process, the better. MOST IMPORTANTLY---DO STAY IN CONTACT WITH YOUR MORTGAGE AND REAL ESTATE PROFESSIONALS. If you have a question about whether or not you should take a specific action that you believe may affect your credit reports or scores during the loan process, your mortgage or real estate professional will be your best resource! NOTES: Are you looking for a credit monitoring or credit repair program? Call us TODAY to find out about our in-house program that will help you get into your new home! RATE