Your Credit Report
Your individual credit report is one of the most important barometers of your overall financial health. This summary of your financial responsibility tells lenders about your history of paying bills and is used by them to decide whether to loan you money. Credit reports may affect your mortgage rates, credit card approvals, apartment renting requests, or even your job application. Reviewing credit reports helps you catch signs of identity theft early too!
The official website, annualcreditreport.com, is the ONLY authorized online source for you to get a free credit report under federal law. You can get a free credit from each of the three national credit reporting companies every 12 months. Some other sites claim to offer “free” credit reports, but may charge you for another product if you accept a “free” report.
Your Credit Score & Mortgage Loan Process
Protecting your credit score is critical when you are in the process of buying a new home. Your rate and loan costs could be affected by even a slight change. Lenders want to know what your credit history is, and whether you have the ability to pay back the loan you are requesting. In short, good credit translates into lower rates and/or fees for the home buyer, and less risk to the lender.
Generally speaking, a credit report will not be pulled for a Pre-Qualification of a mortgage loan. However, once you formally apply for a mortgage for a Pre-Approval, a credit report is pulled at that time and a credit score is determined. Once you complete a loan application and enter into the loan process, there are precautions to take concerning credit. Lenders may wish to review credit again prior to closing, so any major credit activity from loan application to closing can impact your approval.
There are thousands of credit scoring models. Two common scoring models are FICO® Scores and VantageScore®. For a score with a range between 300-850, a credit score of 700 or above is generally considered good. A score of 800 or above on the same range is considered to be excellent. Most credit scores fall between 600 and 750. Higher scores represent better credit decisions and can make creditors more confident that you will repay your future debts as agreed. Below are the scores ranges for each scoring model.
One of the most well-known types of credit score are FICO Scores, created by the Fair Isaac Corporation. FICO Scores are used by many lenders, and often range from 300 to 850. A FICO Score above 670 is considered a good credit score on these models, and a score above 800 is usually perceived to be exceptional. The higher the borrower’s score, the less likely he is to default on his loan.
FICO Score ranges:
|Credit Score||Rating||% of People||Impact|
|300-579||Very Poor||17%||Credit applicants may be required to pay a fee or deposit, and applicants with this rating may not be approved for credit at all.|
|580-669||Fair||20.2%||Applicants with scores in this range are considered to be subprime borrowers.|
|670-739||Good||21.5%||Only 8% of applicants in this score range are likely to become seriously delinquent in the future.|
|740-799||Very good||18.2%||Applicants with scores here are likely to receive better-than-average rates from lenders.|
|800-850||Exceptional||19.9%||Applicants with scores in this range are at the top of the list for the best rates from lenders.|
Tips for protecting your credit score & your mortgage loan process
- Get up to date on any past due accounts and avoid making payments late
- Pay down outstanding credit card debt
- Try to stay below 25% of your credit limit
- Limit applications for new credit such as a new credit card or department store line of credit
- Do not make any large purchases. This includes buying items for your new home. Wait until your loan closes to purchase a new living room set, appliances or automobile
- Do not close existing accounts. Length of history is important to a good score
- Do not liquidate funds and keep your investment funds invested
- Stay at your current job. Stability is important to your creditworthiness. A change now can affect your credit score and delay or derail your loan application
- Do not deposit a large amount of cash, unless you can track its origin thoroughly and it’s allowed within your loan parameters. Hold off on borrowing cash from your mom.
- If you find an inaccuracy in your report, contact the agency reporting the error and let them know you’d like a correction
How long does information remain on the credit report?
Experian stores information from credit grantors and public records, including bankruptcies, judgments, and liens. Missed payments and most public record items remain on the credit report for seven years, with the exception of Chapter 7, 11, and 12 bankruptcies, which remain for 10 years, and unpaid tax liens, which remain for up to 10 years. Active positive information may remain on the report indefinitely. Requests for your credit history remain on the credit report for up to two years.
What are the common ways to establish credit history?
- Ask someone with established credit to co-sign a loan for you, open a joint credit card account, or add you as an authorized user to an existing credit card account.
- Ask your landlord and utility companies to report your positive payment history to the credit bureaus.
- Ask a potential creditor to request your Extended View score from all three major credit bureaus. These scores incorporate more sources of information to build a better picture of your financial history.