Are you Credit Worthy?
Determining if you are credit worthy to get a mortgage is a must for home borrowers
before you begin looking at homes to buy. Do not let anyone tell you differently! The real estate world has changed over the last few years and in order to borrow you must meet certain lending standards set by lenders.
First, check your credit report which you are allowed to do free once a year through the three major credit reporting agencies: Experian, Equifax and TransUnion. You must determine if you have incorrect information on your credit history and work on correcting it with the credit bureaus if it is inaccurate.
Secondly, meet with a reputable mortgage lender who will evaluate you as a borrower. The mortgage lenders use a widely available tool called a FICO score which is the most used evaluation of a consumer’s credit. It is the universal model to determine whether you the consumer is credit worthy to a lender. The lenders establish a risk in lending to you based upon your FICO score. Honestly, your FICO score impacts your insurance rates, employment and a multitude of other things that you should be aware of. Keep good credit or work hard to improve it. If you want to obtain a mortgage at a good rate you need to have good credit now.
So how do you improve your credit score to be credit worthy?
Some of the guidelines are shared with us although we don’t know to a ‘t’ how the algorithms truly are, the following information will help you sort out where you need to improve your credit:
- 35% is your payment history and is the most important – late payments on loans such as car and credit card will lower your score while paying on time will improve it.
- 30% is what is called credit utilization – the ratio of credit card balances (revolving credit) to your total credit card limits. The lower the credit card balances are to your overall credit card limit (revolving credit limit) the better your score will be. Also, closing revolving credit accounts will negatively impact your credit score.
- 15% is the length of credit history – and some of this comes with age. The longer your track record of paying your bills on time is the better this part of your FICO score will be.
- 10% is the type and variety of credit used (revolving, installment or consumer finance) – variety of credit seems to be key here.
- 10% is the recent search of your credit – whereby constantly applying for credit cards and such will negatively impact your credit. However, employment checks and credit checks you do yourself is not suppose to impact your credit score.
Know that lenders consider a credit score more than 720 as a very good credit score. Between 680-719 is good. A score between 620-679 will make the lenders look harder at you and your file. Below this number will be problematic to get a mortgage but some lenders will lend at a higher rate if you are at least above 585 on your credit score.
One thing borrowers need to know. Do not during this period buy a new car, new furniture or anything that will add to your credit liability. Enough said…it is time for you to either work on your credit or see a good lender.
Call me now so I can set you on the Right Path to buying your home! Decide if You are Credit Worthy.
Ginny L. Gorman – North Kingstown RI Realtor – 401.529.7849 – www.RIHouseHunt.com
North Kingstown, South Kingstown, East Greenwich, Narragansett, Jamestown and Charlestown RI Homes for Sale – waterfront homes, ocean front homes, luxury and vacation homes are my specialty.