All About Your Credit Score

The credit scoring system affects how much money a lender will loan you, what loan programs are available to you, and what your interest rate will be. It also impacts how much money you must put as a down payment and other terms of your loan.

How the credit system works

The merchants and companies with whom you do business (banks, household utilities, credit card issuers, collection agencies, courts, etc.) report your credit history to three major credit bureaus. When you apply for a loan, the lender will buy a report of your credit history from each of the three bureaus.

What data is on my report?

The report shows each of your credit accounts, credit limit, balance due, and if your payments have been on-time. The bureau analyzes your credit history and assigns it a "credit score." These scores range from the high 300’s to the mid 800’s. Most of the population falls in the middle of this spectrum. Take a look below at the different categories of credit scores and see how they affect your buying power.

Credit scores of 720 or higher - Excellent

This range is considered "excellent." Borrowers with scores of 720 or greater can expect to receive the best loan programs and rates available. A good score may also qualify you to obtain Stated Income and Limited Documentation loans, as well as for low-down payment financing other loans. With a high score, it is easier and faster to get approved.

Credit scores of 680 to 719 - Above Average

This range is considered "above average." Many lenders offer financing to these borrowers, but the rate or fees may be higher. Typically, 100% financing is available to home buyers in this category.

Credit scores of 620 to 679 - Average

Many borrowers fall into this range. You may have never had a late payment in your life yet still have a score in this range. This is due to the many factors used in determining the scores, including income, length of time at your job, amount of credit already available to you and more. Credit scores in this range are considered "good" but the selection of loan programs may be limited or incur higher rates or fees.

Credit scores of 580 to 619 - Below Average

These borrowers typically cannot obtain Conventional financing. In previous years, "Sub-Prime" loans were available however these days such loans are not as common. We do have loans available for borrowers with these scores.

What about errors in my report?

Errors are not uncommon and can cause your score to be lower than it should be. If there’s an error, let Steve know and he’ll advise you on the best course of action. Oftentimes, he can fix them and quickly — within 72 hours.

Should I pay off credit cards? Should I pay off bad debts?

Not necessarily — doing this can lower your score! If you have issues like this, please consult with Steve before making any adjustments.

What is not on my credit report?

Information pertaining to race, religion, personal assets, medical history or criminal record. Also, some credit grantors do not report to all three bureaus and some businesses do not report to the bureaus at all. Because of this, the data each bureau has about you will vary from the others.

For how long does data remains on my report?

Creditor grantors report both open and closed accounts. Paying an account in full does not remove your payment history.

* Open accounts "paid as agreed" may remain on your credit profile indefinitely.

* Negative credit history is removed after 7 years.

* "Collection" accounts remain 7 years from the date the debt is placed with the collection agency.

* "Charged off" accounts remain for 7 years from the date of last activity. If you pay an account which was a charge off, the payments shows as "new" activity, so this could hurt your score!

* Bankruptcies remain for up to 10 years.

* Paid tax liens remain for up to 7 years from the date released; Unpaid tax liens remain indefinitely.

* Judgments remain for 7 years from the date filed.

Why is the reported Balance Due for my account not correct?

The balance due is the amount owed on the date the credit grantor last reported the status of your account; it’s not real-time data.

What about inquiries into my credit history?

Inquiries will remain for up to two years. They impact your score for one year and will only appear on a mortgage credit report for 90 days. The impact of inquiries is minimal.

Does divorce affect my credit?

A divorce decree does not override an original contract with a creditor nor does it release you from legal responsibility on any accounts. If you wish to be released from an obligation, you must contract with each creditor individually and seek a legal, binding release in writing.

Here are some tips for divorcees:

• Communicate with creditors — ask them to transfer the debt into one spouse’s name.
• If the creditor won’t transfer debt, close all joint accounts and move balances from joint accounts to individual accounts, refinance mortgages and car loans; close credit cards to avoid further charges.
• Keep joint bills current, even if it means paying the spouse’s share of the debt — if you don’t pay creditors will be less likely to release one party from joint liability.
• Get a copy of your individual credit report so you know exactly what debts are owed, and continue to check on a regular basis to confirm that your report is being properly updated.

What if I was denied credit?

If you have been denied credit, employment or insurance based upon a credit report, you have the right to receive a free copy of your credit report. You must provide the credit bureau with a letter that proves you’ve been declined.

For more information

When it’s time to get a new mortgage or re-finance, talk to Steve about your situation and goals. He’ll provide guidance so you can be sure you are getting the right loan and at the best rates. Next, make your loan application and get approved!

Test your knowledge: Credit Myths and Facts

Glossary:

Conforming	a loan amount less than $417,500 (this limit is occasionally increased; it is set by Fannie Mae). A loan amount greater than $417,500 is a "high balance" loan and a loan over $729,750 is a "jumbo" loan. Rates for conforming and high balance loans are usually a bit lower than rates for jumbo loans.
Conventional	a loan that meets the criteria for "standard" loans, including amount of loan, credit score, loan-to-value, type of property, etc. Usually for borrowers with established credit history, 10~20% downpayment, owner-occupied, etc. These days, there is little difference between conventional loan programs and non-conventional ones.
Jumbo	a loan amount higher than $729,500 (this limit is occasionally increased; it is set by Fannie Mae). A loan amount less than or equal to $417,500 is a "conforming" loan. Rates for jumbo loans are usually a bit higher than rates for conforming ones.
Limited Documentation	a loan program for people who cannot provide full documentation for everything claimed on their loan application, such as income or assets. For example, you have a second job which pays cash. Though you can document the income from your first job, you cannot document your income from your second job.
Loan-to-Value (also "LTV")	the [amount of the loan] divided by [the value of the property]. If you make a 10% down payment, your loan will be 90%, meaning your loan-to-value (LTV) is 90%. The higher the LTV, the riskier the loan is for the lender. A lower LTV is less risky for the lender, so the rates will be a bit better. Should you wait to save more down payment in order get a lower rate? Usually not-- ask Steve to analyze your situation.
Stated Income	a loan program where you disclose your income, but do not have to prove it. You simply state your income but do not provide documentation. The income you claim must be reasonable for the type of work you do. The lender will call your employer to verify that you are employed, but won’t ask your income.