Understanding Your Credit Report
The credit and mortgage process can be a very confusing and complicated one if the person going in does not know what to expect. The majority of the credit process revolves around a person's credit report.
Credit reports tell how much and what type of credit you have (e.g. auto loans, student loans, credit cards), how long you have had credit, and how timely you are when paying your bills, and your exact credit score. Your credit score is based on the records compiled by credit bureaus and includes the information reported each month by your creditors such as existing credit you have and your payment history. Credit scores can range from 300 to 900. The higher the credit score, the better!
Many people lack a clear understanding of how their credit score is determined. Your credit score is a result of a variety of compiled factors, including:
· Number of late payments and how recent are the late payments?
· Amount of available credit cards
· Number of credit accounts
· Length of time credit accounts have been opened
· Number of times had a lender inquired into your credit?
· Number of new accounts
Depending upon what your credit score is it will tell the lender whether you are considered to be a risky or safe investment. If your credit score is 720 or above then this will tell the lender that you are a very low risk for defaulting. A score between 660 and 719 tells the lender you are at low risk for default. A score between 620 and 659 says that you are at a higher degree of risking default. Lastly, a credit score of 620 or lower tells the lender that you are at a very high risk for defaulting.
A low credit score is important to avoid because it greatly affects your chance of receiving a mortgage. A low credit score may result in you having to pay higher interest rates, make a larger down payment and may even incur a mortgage loan with a repayment penalty. I order to avoid these additional costs it is important to have a high credit score. A high credit score can give you lower interest rates on your mortgage, will require a smaller down payment and can help with streamlining your mortgage application process.
If you are in the position that you feel you need to improve your credit score, there are a few things that you can do to help improve your credit score. You should start by making sure that you don't become delinquent on any of your credit cards, automobile loans or other installment loans. Also avoid overusing you credit cards and other credit accounts. Lastly, close out/cancel credit cards that you no longer use. If you are in the position where you have yet to establish any credit at all you can still be approved for a mortgage loan if you have a "non-traditional" credit report with 4-6 references. References can include rent, cable bills, electric bills, telephone bills and insurance bills.
If you would like to obtain a copy of your credit report you can contact one of the following credit bureaus:
1. Trans Union (800) 888-4213 transunion.com
2. Equifax/CBI (800) 685-1111 equifax.com
3. Experian (888) 397-3742 experian.com
