The importance of your Credit Score
Understanding credit and its impact on your payments.
Your credit and how it will impact your cost for financing a mortgage loan. What does that mean to me, the consumer?
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 that evaluate many different types of information in your credit file, but yet are similar in effect.
The lender's have their own requirements that must be met in order for them to approve a mortgage loan. These requirements are called overlays. Meaning they have 'overlayed' requirements that are placed over the minimum standards written by Fannie Mae or Freddie Mac. Fannie Mae may have a minimum credit score requirement of 560 but the lenders minimum requirement maybe a credit score minimum of 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 most often use a tri-merge credit report. This is a combined credit report pulled from the three major credit reporting agencies. All 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 is ignored but not the information on items of liability.
These models under the Equal Credit Opportunity Act (ECOA) which is a creditor's scoring system, may not use certain characteristics for example, race, sex, marital status, national origin, or religion as factors. The law does allow creditors to use age in properly designed scoring models. But 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 with the specific reasons your application was rejected or the news that you have the right to learn the reasons if you ask within 60 days.
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