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WHAT IS ALL THE FUSS ABOUT CREDIT?

Often clients come to Valley Mortgage Company understanding just a little about the credit review process.  It is not uncommon for a person to not know the details of their credit history or have some mistaken impression about their creditworthiness.  Some have never seen a proper credit report.  Yet credit is a key component to the mortgage process.

Credit Scoring:
Credit analysis can come in many forms, but the report most relevant to mortgage financing is the triple merged-triple scored credit report.  Credit bureaus across the country produce reports by collating information about your credit history typically from the three principle national credit repositories namely, TRANSUNION, EQUIFAX AND EXPERIAN (aka TRW).  When you establish a line of credit, the creditor may report your charging and payment history with one or all of these repositories.  In turn each repository has developed its own credit scoring system which results in an actual numerical score included on your report. Since each repository uses a different formula for scoring and since each repository may collect different creditor information is it common that your report will contain three different albeit similar scores.  The credit scoring system became prevalent during the 1980's as a way for lenders to quickly evaluate a potential borrower's creditworthiness. Lenders today heavily rely on these scoring systems to predict financial risk over time. A score in the mid 600 range typically meets most requirements set forth by lender. The basic credit scoring formula takes into account several factors including the following:

  • Payment history - A good record of on-time payments enhances your credit score.

  • Outstanding debt - Balances above 50 percent of your credit limits work against your credit score while balances under 30 percent are considered desirable.

  • Credit account history - An established credit history is key.  Having too few or too many trade accounts works against an ideal profile.

  • Recent inquiries - When a lender or business checks your credit, it causes a hard inquiry and potentially a slight ding to your credit score. Apply for new credit in moderation.

  • Types of credit - A healthy credit profile has a balanced mix of credit accounts and loans.

Correcting Inaccuracies:
It is common for your credit report to contain some inaccuracies.  Many times this is not relevant to your score or overall creditworthiness. However, under the Fair Credit Reporting Act, you are protected from having inaccurate information on your credit reports. If you find such an inaccuracy, you must contact both the creditor associated with the mistake as well as the repository recording the improper information. This can be a time consuming and sometimes frustrating process but it is essential for you to maintain a proper credit profile.  Many consumers now check their credit history on an annual basis. We can secure your triple merged-triple scored credit report by our completing and returning the CREDIT REPORT REQUEST.

 

 

COMMON MISCONCEPTIONS

"I am sure my credit is fine.  I have gotten lots of credit card offers in the mail."

Getting credit card offers is not the same as getting credit approval.  Furthermore, the criteria and scrutiny imposed on a credit card application for credit card is far different from the mortgage application.  Some credit card companies look only to the simplest of credit scoring rather than a full triple merged-triple scored analysis required for the mortgage review process.

"I think I have bad credit because I made some payment past the due date."

This could be a problem.  However, most creditors provide a grace period to you before reporting your payment as late.  Moreover, a 30 day late payment within an otherwise stellar and established credit history typically will not compromise your mortgage creditworthiness.

"I had a bankruptcy.  I guess I cannot get a mortgage loan."

This is not necessarily true.  Lenders apply certain rules to the previously bankrupt applicant.  Depending the time since discharge and the credit history since the bankruptcy, you may be able to secure one of a few different types of mortgage financing to buy a home.

"That derogatory piece of information on my credit report is inaccurate.  Can't we just close on my mortgage loan now, and I'll take care of it another time."

While every case is specific, it is not a good idea to assume that a lender will accept your explanation without supporting documentation and allow you to close on your loan and resolve the credit issue another day.  When we work with a client at Valley Mortgage Company we take care to consider the credit matter and time needed by you to resolve the problem against contract dates for closing and rate locks for preserving your rate.  However, the task of correcting credit issues ultimately rests with you in compliance with applicable consumer laws regarding confidentiality.

"I have my credit pulled several times.  This hurts my score doesn't it?"

Not necessarily.  Newer regulations now allow credit bureaus to consider multiple inquiries by mortgage related companies in a thirty day period read collectively as a single inquiry on your credit report so any to not compromise your score.  At the same time it is not prudent to establish a lot of new credit, charge up on your credit cards or buy/lease a new car just prior to making a mortgage loan application.


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