Understanding credit and its impact on your payments.
Your credit and how it will impact your cost for financing a mortgage loan. Try asking your mortgage broker “What Is The importance of your Credit Score? What does that mean to me, the consumer?”. At Solutions First Mortgage we will take the time to explain all of this to you. Until you get in contact with us here is a brief summary for you to start with.
Basically the higher the credit scores the lower the interest rate you may qualify for. however lower interest rates are not just based on credit.
Credit is one of the five major factors impacting your rate.
Your credit score is a gauge used to measure or determine your risk to the lender. Credit is based on your past willingness or ability to pay. Companies report credit to the one or all of the three major credit reporting agencies. These three agencies are TransUnion, Experian, and Equifax. Each of these agencies have slightly different formulas for their very complex mathematical models. They will evaluate many different types of information in your credit file, but ultimately get similar results.
The importance of your Credit Score
The lender’s have their own requirements which must be met, in order for them to approve a mortgage loan. These requirements are called overlays. Meaning they have ‘overlayed’ certain requirements. These are placed over the minimum standards written by Fannie Mae or Freddie Mac. Fannie Mae may have a minimum credit score requirement of 560. However the lenders minimum requirement maybe 620 or 640 before they will approve your mortgage loan.
Unlike credit card companies or auto dealers who may use a Fico score, Real Estate Lenders will typically use a tri-merge credit report. This is a combined credit report pulled from the three major credit reporting agencies. All of the credit information is pulled into one report and the lender uses the middle score as your credit number. This is not an average score, but rather the highest and lowest numbered score will be ignored. The information on items of liability will however, be kept.
These models under the Equal Credit Opportunity Act (ECOA) which is a creditor’s scoring system, may not use certain characteristics. The use of race, sex, marital status, national origin, or religion as factors is not allowed. The law does allow creditors to use age in properly designed scoring models. Ultimately any credit scoring model that includes age must give equal treatment to elderly applicants.
If you are denied credit, the ECOA requires that the creditor give you a notice. This notice will specify the reasons why your application was rejected. You have the right to learn the reasons for the rejection if you ask within 60 days.
How can I improve my credit score? Click to find out how.
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