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Many home buyers worry that their past credit history will affect their ability to purchase a home. You can be prepared if you get a copy of your credit report before you apply for your mortgage. That way, if there are any errors you can get them corrected before completing your mortgage application. If you have credit problems, just be honest with your mortgage professional about them.
The mortgage industry bases the grading of one’s credit by examining such things as, payment history, amount of debt payments, bankruptcies, equity position, past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of credit inquiries. Credit scoring is a statistical method of assessing the credit risk of a loan applicant. The score is a number that tells the mortgage professional what the likelihood is an individual will pay back a loan.
Here is a general guide to help you determine your credit grade.
1: When you have questionable credit, all other aspects of the loan need to be in order. Equity, stability, income, documentation, assets, etc. play a much more important role in your approval.
2: When determining your credit grade, various combinations are allowed, but the worst case will push your grade to a lower credit score. Mortgage lates and bankruptcies weigh heaviest.
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3: Credit patterns are important. A high number of recent inquiries and more than a few outstanding loans may signal a problem. A “willingness to pay” is important, thus late payments in the same time periods is better than occasional random late payments.
Other things that effect your Credit Score
Your education level. It sounds arbitrary, but it’s true. A college-educated person is given more “points” than a high school graduate, for example.
The number of years you’ve lived in a single location. If you’ve moved around a lot, you lose precious points. If you’ve moved because of a better-paying job, you can recoup some of those points if your salary has increased, for example.
The number of years you’ve worked for a single employer. Scoring agencies like people who are stable. That’s why they assign more points to people who’ve lived in a particular place for several years or who’ve worked for a single employer for many years.
Although you may think such a system is arbitrary or impersonal, it can help make decisions faster, more accurately, and more impartially than individuals when it is properly designed. And many creditors design their systems so that in marginal cases, applicants whose scores are not high enough to pass easily or are low enough to fail absolutely are referred to a credit manager who decides whether the company or lender will extend credit. This may allow for discussion and negotiation between the credit manager and the consumer.
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Equifax
PO Box 105873
Atlanta, GA 30348
800-685-1111
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Experian
PO Box 2002
Allen, TX 75013
Consumer Credit Questions:
888-397-3742
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Trans-Union
PO Box 390
Springfield, PA 19064
800-916-8800
800-851-267
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 Correcting Errors on your Credit Report
You have the right under the Fair Credit Reporting Act to dispute the completeness and accuracy of information in your credit report. When a credit reporting agency receives a dispute, it must reinvestigage and record the current status of the disputed items within a reasonable amount of time. If the credit agency can’t verify a disputed item, they must delete it off of your credit report. For those items you feel deserve further explanation, you can send up to a 200 word statement to the credit reporting agencies that will be placed at the bottom of your credit report.
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