You can order 1 free credit report (without scores) from each of the credit bureaus once per year at the following:
Credit scores range from 300 - 850 and the higher the credit score, then the better
the credit.
>= 720 |
Outstanding score and will usually qualify for a borrower for the best of
any programs or rates (especially important for 2nd mortgages or special programs such as no doc, stated income, high ltv programs. Only 1 out of 1300 people have an 800 credit score. |
680 |
Good score and will qualify for most full income documentation 1st mortgage programs just as a 720 would, but if there is a need for a 2nd mortgage or an alternative income type program then there is going to possibly be a rate bump or other similar act. |
620 |
This is a borderline score. The borrower still may qualify for many 1st mortgage programs just as the higher scores, but when it comes to a credit score driven program there will be more of a rate bump and lesser loan to values. |
<= 500 |
Programs are much more limited in these ranges and rates are higher. There are other compensating factors in these cases though, such as low debt ratio, low loan to value, large assets or reserves, etc. Generally we are able to still loan up to 100% of a home purchase price with a 580 score, but there would obviously be a significant rate bump. 1 out of every 8 people have a low score between 500 and 600. |
35% of the score is calculated based on payment history, such as late payments,
bankruptcies, collections, etc. The more recent and derogatory the late payment, the more it hurts the score. Missing low payments is better than missing large payments.
30% of the score comes from balances or relationship of balance to high credit
limit. For instance, it is bad to have a credit card that has a balance near the high credit limit or maxed out. Ideally you want to keep your balances less than 10% of the high credit limit. The main levels to watch out for are: 70% or more is the worst, 50% or more is not as bad, 30% is next, below 30% (preferably 10%) is where you want to be for maximum score.
15% of the score is the length of credit history. This means you want to hold on to old credit cards, even if the rate is not good. You are rewarded for having long term credit card debt.
10% of the score is the type of credit and a good mix is always best – an auto loan, a mortgage payment, a few credit cards, etc. Three to five revolving accounts are optimum.
10% of the score is inquiries made on the borrower’s credit report. Inquiries can affect your score for up to 1 year. The initial 10 inquiries affect your credit score and after that, it doesn’t matter. Also, multiple mortgage and auto inquiries are treated as one as long as they are within a 14 day period of time.
Review your credit report from all 3 bureaus minimum once per year. Have any errors disputed and corrected. Don’t let surprises happen when you are getting a mortgage or other type of credit. See page 1 for ordering a free annual credit report.
Buyers should get pre-approved for a mortgage loan before signing for a home. This will make more efficient use of everyone’s time including the seller of a potential home, both agents, and the buyers themselves. Getting issues handled early rather than later would be better also. Finally, a buyer may not realize what price they actually qualify for. The buyer could afford more house or may be looking at something he can’t afford.
