Cleaner Credit and Mortgages  

FirstAgain:  

How Your Credit Affects Your Mortgage Rates

Lenders take a critical look at your credit when you apply for a mortgage. For most people this is the biggest financial transaction of their life, and lenders know they need to make sure they commit their funds to reasonable credit risks.

Here’s a list of factors that lenders can consider about your credit:

Your “mid score”

• lenders look at the middle of the three different credit scores you receive from the credit bureaus, and the one in the middle is your “mid-score”

• this score is a significant factor used to determine your interest rate

• lenders typically have interest rates corresponding to different credit levels (X rate for mid-score above 720, Y rate for mid-score from 680-719, etc.)

Credit depth

• Lenders like to see open credit lines that you have managed successfully for several years

• A credit or trade line is a credit card, auto loan, college loan, etc.

• The longer you have had these, and paid them on time, the better

• There are some lenders out there that don’t require a lot of credit history, but their rates are generally higher

Timely payments

• Late payments are generally categorized as 30, 60, or 90 days late

• The more late payments there are, the lower your credit score and the less favorable your credit looks

• If you have previous mortgages on your credit, lenders carefully scrutinize this to see if you were timely on these

• Some lenders restrict certain mortgage loan programs to people with “no lates” within the last 12 months on a mortgage

• Other lenders specialize in people who have 30, 60, or more days late on their mortgage, but obviously their rates tend to be higher

• Sometimes lenders can be irritated by lots of small $20 or $80 collections from old cell phone bills and similar items – this shows that you are not a conscientious customer

• If there is an occasional thirty day late on a credit card that has normally been paid like clockwork for several years, this may be explained in writing to the lender as an accident that won’t happen again

• Sometimes your lender will double check your credit just prior to sending the loan out. If you happen to be late on something, such as a car payment or mortgage, this might stop the loan in its tracks.

• When you are in the process of getting a mortgage it is a good idea not to run up additional credit until after you are done
   

Credit Problems

• If you have these, it is best to get a copy of your credit before you try to apply for a mortgage

• There may be items that are inaccurately on there, old collections that were paid and should be removed, etc.

• Sometimes there will be creditors listed on your credit report that have reported collections for you whose name you don’t recognize - this is usually because these are the names of the collection agencies that your “bad debt” was sold to
   

You can provide documentation to credit bureaus to have inaccuracies removed from your credit report.

Credit bureaus have detailed websites that can tell you exactly what you need to do to try to resolve issues.

An important point to understand is that lenders are willing to look at people of many different credit types. There are numerous lenders that focus on people with challenging credit issues. Keep in mind that in exchange for giving “risky” mortgages to people with credit issues, they are likely to charge higher interest rates.