Credit Reports

Good vs. Bad Credit Scores

Your credit score is very important in determining if you will qualify for a loan or not. Some loan programs exclude you from being qualified based solely on your credit score. The higher the credit score the more likely you are in getting an approval. The lower your credit score is, the more likely it is that you have experienced some credit issues in the past. Most lenders only review what has happened with your credit in the most recent 12 months, but other credit events such as a bankruptcy or foreclosure will delay when you can qualify for a mortgage regardless of how high your credit scores are.

How Credit Scores Affect the Loan Type That You Qualify For

The higher your credit score, the more loan programs you will qualify for. If your credit scores are lower that doesn’t mean that you may not qualify for any loan programs. The lower credit score programs are typically more of the government backed programs like FHA, VA and USDA. With our wholesale lenders the minimum credit score required for FHA is a 580, VA is 560 and USDA is 600. Credit scores higher than these listed do not ensure that you will obtain a loan approval, but that we are able to continue working toward a loan approval for you. Most of our competition has much higher minimum credit score requirements. All of the government backed programs are great loan programs, but the way that some of these loan programs handle mortgage insurance is different than that of Conventional loans. Conventional loans require a 620+ credit score. So not being able to do a conventional loan sometimes makes your payment options slightly higher due to the mortgage insurance, where on Conventional loans there are additional mortgage insurance options that may offer lower monthly payment opportunities for you.

How to Improve Your Credit Scores

The credit reporting agencies Equifax, TransUnion and Experian do not release exactly what goes into their credit scoring criteria so we do not know everything. We do know that having a mix of credit helps. This means having both Installment Loans (like a car loan) and Revolving Loans (like a credit card) helps. You will have a higher credit score by having both types of loans reporting on your credit. The longer you have had a loan on your credit the higher the score will be, meaning someone with a 5 year history on a credit card would receive a higher score than someone who just opened one. We have seen that it typically takes about 6 months of having a newly established account with a good payment history before you will see an increase in your scores. Having a low balance on revolving debt (not maxed out) helps increase your scores, so if you have credit cards than try to keep the balance less than 30% of the credit limit. Keeping accounts open helps, the old rule seemed to be to close out anything that you are not using, but we have seen that closing out an account (especially one you have had for a very long time) will hurt your credit scores. Using your credit helps increase scores, meaning that you must have activity on your credit and use your credit (use it gently, but use it). We have seen that you need to use your revolving lines of credit once every six months for that account to figure into the score calculation. Next is how you pay your credit, obviously paying bills on time is much better than allowing your payment to go 30 or more days past due. If you have a current past due amount on any credit line then your scores are being severely decreased. Also avoiding any collections will improve your credit scores. Even Medical collections hurt as the credit agencies only see those as collections, not as medical collections like underwriters do. Finally, minimize the number of credit inquiries. You are allowed to shop around, but having numerous credit inquiries will bring down your credit scores. This is not an exact science and this is suggested as a guide from what we have seen and been told that helps improve credit scores.

What is Included in a Credit Report

There is a lot of information included in your credit report. It shows your existing and prior addresses. It shows your credit history over the past 10 or so years from nearly every place that you have obtained credit. It shows the date of when you first began using credit. It shows the date that your social security number was issued. It shows your date of birth. It shows if you have any public records like judgments or prior bankruptcies. In addition it shows name variations you have used, collection account info, charge offs, foreclosures, short sales, if you did a payment modification and if you are in consumer credit counseling. If we pull a tri-merged credit report that means that we pull credit from all 3 of the credit agencies so that all information available to each is all included in one report as some creditors only report to 1 of the agencies, not to all 3. There is very little that is not in your credit report.

What Types of Things Impact your Scores

Certain behaviors impact your credit scores. Having balance equal to the credit limit on a credit card impacts your scores negatively. Having too many inquiries on your credit report impacts your score negatively. Having late payments on credit (especially something currently 30 days late) impacts your scores. Not having a mix of credit meaning that you need both installment loans (like a car payment) and revolving credit (like a credit card). Not having established credit (only having 1 tradeline with only 1 or 2 months of review). Collection accounts impact your scores even if they are medical collections. Not using your credit (at least once every six months) impacts your scores. Closing good credit accounts impacts your credit (as soon as it is closed all of the good history that helps credit scores goes away). Using finance companies rather than typical banks (apparently the bureaus think that using a finance company is typical of a more risky applicant) so try using a local bank for smaller financed items like furniture or personal loan rather than using a finance company. Having public records (like a bankruptcy or tax liens or judgments) impacts credit. How long it has been since your last delinquency impacts your credit so make sure if you miss a payment or get a collection that you allow some time to pass before checking your credit again.