Jan
1
Why do I have different credit scores
Filed Under credit | Leave a Comment
Here are reasons why you have different credit scores:
There are 3 different credit reporting agencies. Each one gives you a score. They work independent of each other.
Mortgage lenders typically look at your middle score as your qualifying score. there are some lenders that will take the high score into consideration as well. But as a general rule when applying for a mortgage always give the mortgage broker your middle score if you know it.
Usually a lender will use the middle of the three scores to qualify a borrower and to chose rate.
One creditor may report to only to bureaus A and B, another creditor may report to bureaus B and C, and yet another creditor may only report to bureau B. For this reason, the exact information that each of the credit bureaus has on file about you varies, and therefore so does your score with each bureau.
The primary reason for discrepancies in the three different credit scores is that each credit bureau uses a different scoring module. The scoring system used by Experian is the Fair, Isaac module, the one used by Trans Union is called Empirica and Equifax uses a scoring system called Beacon.
You have three different scores because each bureau has a different system for placing a numerical value on your credit quality. Another reason these scores can vary so much is that some creditors only report to certain bureaus and therefore the other bureaus may not be scoring that particular credit file which can cause a difference in actual scoring.
There are nonconforming lenders that will use average your scores or even use the highest score. Your mortgage professional’s job is to place you with the lender that would be most advantageous to you.
The information that the credit bureaus have on file about you is provided by the creditors who you currently have credit with, as well as the ones you’ve dealt with in the past several years.
When disputing incorrect information on your credit report, be sure to write to all three credit repositories. If only one is notified of the erroneous item, your scores from the other two bureaus would not improve.
Credit score differ because of the credit items that are being reported to each credit bureau, all 3 credit repositories are independent of each other, and because their are different credit scoring modules. Some creditors only report to 1 or 2 credit repositories while others may report to all 3. Trans Union is different from Equifax and they are both different from Experian. By all 3 being independent they all have their own individual credit scoring systems. Lastly, just like there are Windows 98, Windows 2000, Windows XP, etc… as operating systems for a computer, there are different versions of credit generation also. Some lenders may use an older credit operating system simply because it is cheaper to obtain credit reports than the latest credit operating system out available.
Jan
1
What determines my credit score
Filed Under mortgage | Leave a Comment
Credit scores have become very important to consumers for a variety of different things. Your credit score determines whether you will be, approved, declined, required to place a large down payment, or have to obtain good or very unfavorable terms for not only mortgages, home loans and cars, but for a variety of other things as well. Your credit and credit scores can now play a major role in determining what premiums you pay for homeowners and auto insurance, whether or not a utility company (phone service, gas service, electric, etc…) will require you to place a deposit down to get service turned on (and how much of a deposit), your rate and determine whether you will be approved or declined on personal loans and credit cards, whether or not you are able to rent an apartment or home, amongst many other things. Many employers now look at a potential employee’s credit report before hiring them. Therefore, you can see how credit and credit scores can play an important role in your life and with bad credit it can force you to pay higher interest rates, higher payments and higher premiums on numerous different items. There are many factors that help contribute to determine a persons credit score that you will learn about here.
The number of open accounts you have influences your credit score. Less than 3 or more than 5 can decrease your score.
The companies that determine your score do not fully disclose all the inner workings of what goes into your score. Granted they tell you what percentage of types accredit help or hurt you but they don’t get into the nuts and bolts of it all. There are however some basic rules of thumb. One rule of thumb is to have your balance be lower then half the highest available balance. So if your highest available balance on a visa card is say 10k. Make sure your actual balance is below 5k. There is also a seasoning factor. Someone who has maintained good credit standings for a long period of time will generally have a higher score then someone who just established their credit.
Whether you pay all your bills on time is probably one of the more important aspects that determines your credit scores. Most companies that extend credits to you report to the major credit repositories on a regular basis. Any late payments history will have a negative effect on the credit scores. The more recent the reported “lates”, the higher the impact on scores. Lender banks consider mortgage payment “lates” much more severe than credit card late payments, and punish homeowners with mortgage “lates” accordingly with higher interest rates and/or lower loan amounts.
Your credit report will list any collection or charged-off accounts that you may have. Having these kind of accounts reporting will definitely have an adverse affect on your credit score. A word of caution though. Paying off collection accounts, especially older ones may cause your credit score to go down, at least in the very short term. If you are applying for a mortgage please consult with a mortgage professional such as myself before paying old collection accounts.
The number of recent inquires has an affect on your score as well. Although it does not carry as much leverage as many other factors in determining your credit score you should still avoid having your credit checked unless necessary.
If you have had a bankruptcy, you can expect it to stay on your credit report for up to 7 full years. Although it will still show, there are ways to still increase your credit score after a bankruptcy.
Jan
1
Purchasing a Home
Filed Under mortgage | Leave a Comment
I am interested in buying a home. What do I need to do to buy a home? How much of a home loan can I qualify for? Can I get a house with no money for a down payment? I want to buy my first home. These are a just few examples of the most common comments and questions made and asked every single day by thousands of people from all over the country. Buying a home can be a relatively scary task, especially for the first time homebuyer. However, working with a good mortgage consultant or mortgage broker can make this a very gratifying and pleasurable experience.
Before shopping for your dream home in your desired neighborhood, obtain a copy of your credit report and examine it for any negative or incorrect items. If so, contact the three major credit repositories and request to have the false items removed. Preparation will get a home buyer the best deal in both the house hunter process and the mortgage application.
Purchasing a home makes more sense than renting. People who purchase homes gain the tax advantages that comes with purchasing a home. Another benefit of purchasing a home is the appreciation you gain. When you consider the tax advantages and the appreciation, you’ll see that purchasing a home makes more sense than renting.
You will want to decide on a mortgage company to provide you with financing for your home. A mortgage broker is often the best option for your financing. You should pick a mortgage broker you are comfortable with and who will provide you with a Good Faith Estimate and a rate lock letter when a rate is quoted and locked.
Working with a broker can benefit you because brokers have access to the loan programs provided by hundreds of different lenders. In effect, they are shopping all of the different lenders for you to make sure that you get the right financing for your situation.
Once you are pre-approved by your mortgage professional, you will need to find a real estate agent that you can trust. Your local mortgage professional should be able to give you a couple of names of their trusted realtors. It’s important to find a real estate agent that you like, because you may be spending a lot of time with them.
Jan
1
Credit Reports
Filed Under mortgage | Leave a Comment
Credit reports are your lifeline in the financial word in regards to obtaining financing. You want to be sure that your history is reflected accurately. Many times people find out too late that their credit report is not correct. It is a good idea to review your credit report once every 3 months to insure all your account history is accurate. Common problems on credit reports:- Not your account- Loans reporting a balance which have been paid off- Collection accounts that are incorrect- credit accounts discharged in bankruptcy- Judgments that have been satisfied not reporting as satisfied- Credit cards which you were only an authorized user on showing lates- Many more These problems can lead to lower scores and less than ideal rates. Correcting your credit report is not an overnight task, so plan ahead and make sure you have the most accurate credit profile as possible. You can dispute your accounts individually, or you can hire a company to work with you on fixing the incorrect information.
Reviewing your complete credit report with one of our mortgage professionals is the best way to fully analyze your personal credit situation and determine which accounts it would be most beneficial to consolidate in a cash out debt consolidation scenario.
The first thing you need to do is gain access to your credit report. You can buy reports from Equifax, Trans Union and Experian, the largest credit reporting agencies. Buy a report from each, because one may contain errors that affect your credit score.
When applying for a mortgage, your credit rating is one of the first things a lender will look at. They’ll be loaning you a large amount of money, and if it seems that you are likely to default on the loan, lenders will hesitate to loan you the money. Usually, lenders compensate for this higher risk with higher interest rates, so it is in your best interest to have a high credit score.
Credit reports that contain information from the three major credit repositories are called Tri-merge Reports. Base on each individual’s credit history, the three repositories each assigns a numeric value, called Credit Score. In addition to a credit profile free of negative entries such as late payments and collection accounts, an acceptable credit score is also important to mortgage lenders.
If you are looking to get a mortgage for a home then it might make sense for you to contact your mortgage broker and have them pull credit. Your broker or loan officer will go over the report with you and let you know what needs to be addressed if anything. The most important things is to pull you credit now. Don’t wait until you have a contract on the house because you may find that you need time to work on some issues that show up on the report.
Your credit score is calculated as a statistical summary of all the different information in your credit report, including - History of Paying Bills- How much debt you have outstanding- length of time you’ve had credit- number of cards and loans- your credit limits- the types of credit you have
You are entitled to one free credit report, from each of the three reporting agencies, once a year. When obtaining a mortgage line it is good to review your own credit history first. Banks and lenders will rely on these reports to represent your willingness and your ability to repay the monthly payments in a timely fashion. If you find a account reporting in error, it is quite simple to dispute an error online, directly with the agency reporting the error. The websites for the three agencies, offer this service when you order a report and the process of disputing an error is handled directly online.
There are five major types of information used to calculate a FICO score at any given point in time are listed below. Each type of information counts as a percentage of a total FICO score: - 35% Payment History
Jan
1
Credit Report
Filed Under mortgage | Leave a Comment
Provided by the major credit bureaus, Equifax, Experian ampersand Trans union, a credit report provides a detailed account of your credit history.
A Credit Report will cover your individual credit, including your history and present credit standing. The report is a very important when used in the mortgage process, so keeping a good credit rating must be a top priority for you, if you plan to buy a house.
When applying for a mortgage, all people whose names appear on the title to the property must have their credit pulled and reviewed by the lender.
Your lender will call you to review your credit report with you, and can determine which items would be most helpful to pay off using the proceeds of the loan, and those items which much be paid off as a condition of getting the loan.
In order to apply for a mortgage, you must provide your lender with your name, date of birth or dob, social security number or ssn and an authorization to run your credit.
If your balance is over 50% of your credit limit the credit bureaus consider this card to be maxed out. Ideally you should keep your credit cards under 30% of your credit limit. Having 3 credit cards all with balances of less than 30% of the credit limit will give you the best credit score. Older accounts in good standing have a positive impact on your credit score.
Your mortgage broker may pull either a single bureau report, a double bureau report or a tri-merge report when he pulls your credit. There are 3 credit repositories that they can pull your credit report from: Trans Union, Equifax, and Experian. A single credit report would simply be just one of the repositories listed, a double would be 2 of the 3 and a tri-merge is when they pull all three. Generally most lenders want a tri-merge report pulled and they use the middle score of the 3. If the lender allows a dual bureau report then they will usually use the lower score of the 2 scores pulled.
Most brokers work with someone that repairs credit, make sure to ask for a reference. Most credit Bureaus are offering mortgage brokers a program that will tell them how to improve you credit score quickly in order to get the borrower their desired loan. Many changes can be made to a borrower’s credit to improve their score in as little as 30 days.
Your scores can take a hit if you have your credit pulled many times by different companies. They do however allow you many credit pulls within 15 days and will only count that as one pull when you are shopping for a mortgage. You might have to provide a letter of explanation for why these pulls showed up on your report.
A credit report contains a vast amount of information, most of which is very germane to the borrowers qualification for a particular mortgage program. Many consumers mistakenly believe that the only thing that matters are the scores that are generated from the report. The fact is that most often items in the “guts” of the report are just as important in the underwriting decision process as the scores.
Reducing your balances on revolving accounts can increase your credit score in a short amount of time. Make sure to ask what the balances are reporting on your credit report.
Other sites: Mortgage Broker | Mortgage banker | New Credit Card Minimum Payments | What is a Pay option ARM | MIP | Quick Closing | VA | Delinquency | What not to do after you apply for a Mortgage| Pay Option Arm Calculator
Jan
1
Collections
Filed Under personal finance | Leave a Comment
Frequently asked questions on collections:
Q: Can I still get a home mortgage loan with open collections showing on my credit?
A: Yes you can
Q: How do I get these collections removed from my credit?
A: Accurate negative items reported on your credit can be reported on your credit for 7 years.
Q: How come only some collections report to my credit record?
A: Each creditor, collection agent, lender, etc… can choose to report items to your credit report or not. Some will report not report to any credit repositories, some to only 1 credit repository, some will report to 2 repositories, and some will report to all 3.
Q: Do medical collections negatively affect my credit score?
A: All collections can negatively impact your credit score.
Q: I have heard paying off collections is worse than letting them be so is it better to pay off the collections or should I just leave them alone?
A: This is a very tricky situation and should be approached on a case by case situation. While you should always pay off true debts that you owe money for, sometimes it may be better to wait until after you have obtained financing for a home and sometimes you may need to pay collections off beforehand. Please consult a mortgage professional to find out what will help you most right now and to map out a financial plan.
Q: I cant afford to pay the collections off, what can I do?
A: You can call your collection companies and see if you can get them to lower the amount owed. This is very common and is highly recommended before paying off any collection. Many collection agents will bargain with you and some may even go down to 50% of the original balance. These questions are just a small sampling of some of the questions that are asked everyday by homeowners and people looking to buy their first home. Please contact your personal mortgage advisor today to find out more information about credit, collections and financial planning.
It is important to note that when you contact a collection agency and barter down a payoff amount that it will show on your credit report as “settled less than amount owed”. If an account has just gone into collections, try contacting the original creditor and paying them directly. You may be able to negotiate fees and finance charges being “removed” and then paying the debt in its entirety. Make sure you get a letter from the creditor stating the debt has been paid in full.
Not only will your mortgage advisor have answers and resources available to answer any questions, they will also have trusted relationships to recommend for your home purchase, your credit issues and your over-all financial goals.
Not all collection accounts need to be paid off. In many cases when buying a home or refinancing, the only items that need to be paid off or addressed are those items that appear on title. This is not a conforming guideline, but nonetheless is a loop-hole around having to pay them off at the time of buying or refinancing your home.
Repairing your credit, or restoring as some like to put it, is best done by a professional company. Your mortgage broker will refer you to a reputable company that can remove items like collections from your credit file. As a general rule, if it can go on your credit, it can come off too. The 7 year rule is only the maximum amount of time a derogatory can stay on your credit file.
Most subprime and Alt-A lenders will ignore open medical collections completely. Also most of these aggressive lenders will over look a certain dollar amount of collections that were opened in the last 12 months. And most collections older then 24 months will be ignored by most subprime and Alt-A lenders.
Some lenders allow all collections, judgments etc to stay open, as long as your score meets the criteria. If you have re-established credit and have a score in the upper 500’s, you can still qualify for 100% financing while having open, old collections. Contact us now to have a broker analyze your situation .
The new allowable limits for collections on your credit report is $5000. If your credit report show $5000 or less you may not have to pay them off. If it is over the $5000 then all of the collections will need to be paid. If you are receiving a non conforming/subprime loan the guidelines vary greatly and you may not have to pay any off.
It is also important to keep in mind that updating credit reports can take some time. Even if you paid all your collections today, it could still take 30-45 days before this reflected on your credit report. The most important thing is to get every interaction with your creditors in writing. If your arrangements are not in writing, they may not mean anything.