Tag: low credit

Breakdown Your Credit Score

Credit Score Breakdown

When buying a home, your credit score is an important factor in your home loan approval. It is important to know what is on your credit and what credit score you have when applying for a mortgage.

While, the exact scoring models are proprietary and not released by the credit bureaus to the public, credit experts have determined the weight of each factor that determines your credit score.

Related: Buying a home with Bad Credit may be possible with FHA Home Loans. We accept applications down to a 580 credit score!

What Makes up your Credit Score

Payment History

Paying your bills on time is the most important factor for your credit score. Weighted at 35% of the total score, paying bills late can devastate your credit rating.

Amounts Owed

Credit to Debt ratios are the second most important factor which is weighted at 30% of the overall score. The good news about this is that it is a quick and easy fix to improve your credit scores. For example, if you have a credit card with a $500.00 limit and you owe $490.00, it is essentially “Maxed Out” which reflects poorly on your credit rating. Paying down this debt to under 30% of the limit ( $150 or less in this example) would boost your scores quickly!

Length of Credit History

The length of time you have had accounts open is the next rating factor. At 15% of the credit rating, the credit bureaus know that maintaining long credit relationship with banks and lenders proves that you are a good credit risk and positively affects your score. For this reason, it is important to keep old credit lines open even if you are not utilizing them.

New Credit Inquiries

Having your credit pulled is an necessary evil when applying for a mortgage. What is not necessary is having it pulled by 10 different institutions for different credit types. If you apply for credit cards, auto loans, and mortgages over a short period of time, your credit rating may drop.

Types of Credit

The final major category that determines your credit score is the types of credit that you hold. Long term investments such as a mortgage can positively impact your credit. If you only have revolving credit such as credit cards, your credit depth is shallow and may not give you the highest credit scores possible.

Click here to Download Our Credit Tip Flyer!

How to Improve your Credit Score

There are simple techniques to improving your credit scores. It is important to monitor your credit from time to time and make sure all of the information is accurate. If there are errors, you can dispute the information directly with the bureaus to have it corrected. It is not suggested that you do this before or during the mortgage process as it may cause delays.

Additionally, paying down revolving account balances can quickly boost your credit scores. While there are no magical fixes to your credit, there are several best practices that you should do to increase your credit score.

Tips to Improve your Credit Rating

  • Correct inaccuracies on your credit
  • Pay all your bills on time.
  • Do not apply for too many lines of credit.
  • Do not max out credit cards.
  • Keep older credit lines open.

Contact a mortgage expert today by calling us at 1-800-555-2098 or simply apply online below. We are happy to help!

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Trended Credit Data: How Will It Affect You?

You may have heard some buzz this spring about mortgage giant Fannie Mae and trended credit data, changes which were set to take effect in June. Just days before the launch, however, the new system was delayed unexpectedly. Well folks, long-awaited Desktop Underwriter 10.0 launched this past weekend, and with it, the requirement that lenders use trended credit data on all new loan casefiles.

What is Trended Credit Data?

Trended credit data is a detailed record of credit history, including payment history and total balance each month. The addition of this new information will allow lenders to more accurately tell the difference between ‘transactors’—borrowers with large balances who pay in full each month—and ‘revolvers’—borrowers with large balances who pay only the minimum payment each month. Until now, existing credit reports could not distinguish the two.

The new credit report will feature trended credit data history on credit cards, HELOCs, student loans, car loans, and mortgages. The actual appearance of credit reports will change very little, but will include 30 months’ history with Transunion and 24 months’ history with Equifax; Experian plans to add trended credit data in January 2017. Neither FICO or VantageScores incorporate trended data into their system at this time.

Example of Trended Credit Data on a Credit Report

The example above shows a revolving account with trended credit data.

Why is This Important?

The addition of trended credit data provides a more detailed picture of a borrower’s credit behavior, rather than the traditional moment-in-time credit snapshot. It allows lenders to better predict your future payment behavior and assess your risk.

“The trended credit data will be used by the DU risk assessment to evaluate how the borrower manages his/her revolving credit card accounts. A borrower who uses revolving accounts conservatively (low revolving credit utilization and/or regular payoff of revolving balance) will be considered a lower risk. A borrower whose revolving credit utilization is high and/or who makes only the minimum monthly payment each month will be considered higher risk.” – Fannie Mae

How will this affect my credit score?

Fannie Mae has not yet released conclusive guidelines as to how trended data will be scored or impact the underwriting process. Financial institutions across the country, however, speculate that this will open up the credit window to potential borrowers previously deemed unworthy. That’s right—trended credit data can turn a denial into an approval!

Even the most responsible borrowers make mistakes, but forgetting to make a payment will cost you more than just a large late fee—it can lower your credit score upwards of 100 points, in some cases! Until now, only years of hard work and waiting for delinquencies to season could rebound a credit score. With the addition of trended data, however, a borrower can effectively counter that late payment within a couple of months. Tendencies such as paying off revolving balances in full, making additional payments, and reducing total amount borrowed over time all demonstrate positive repayment ability and behavior.

Have a specific scenario you’d like to run past us?  Give us a call to speak with one of our licensed loan officers. We would love to recommend the best loan program for you and your situation.

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