 Lenders want to give you a mortgage, but they also want to
minimize their own risk. The easiest way to retard risk is by using your credit
scores to make lending decisions.
Credit scores are compiled separately by three consumer
reporting agencies – Equifax, Experian, and Trans Union. These credit reporting
bureaus calculate scores differently, and base their scores on information that
may differ from other bureaus.
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Equifax
Beacon 5.0 Facta: scores range from 334 to 818.
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Experian
Fair Isaac V2: scores range from 320 to 844.
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Trans
Union FICO Risk score Classic 04: scores range from 309 to 839.
Your credit score is a number that reflects the information
in your credit report,whether you pay
your bills on time, how much you owe creditors, payoffs, and derogatory
information such as liens. It also includes inquiries into your accounts from
lenders, landlords, and employers.
When you apply for a home loan, your application includes
giving your lender permission to “pull your credit” and base the decision to
lend to you and the rate of interest on the information contained in your
credit scores. The higher the score, the better terms you’ll receive from the
lender.
Once your credit scores are reviewed by your mortgage
lender, you’ll receive a computer-generated report of the findings, but it
won’t have a copy of your entire credit report. It may include key factors that
adversely affected your scores. Some examples might include:
-
Too many inquiries in the last 12
months
-
Time since most recent account opening
is too short
-
Proportion of loan balances to loan
amounts is too high
-
Too many accounts with balances
-
Amount owed on revolving accounts is
too high
What if you’re declined for the loan or your lender wants to
charge higher interest than you were expecting? Is there anything you can do?
Yes, talk to your lender and ask for help repairing or
correcting your scores. For example, you may have innocently done something
that resulted in a negative score, such as closing a line of credit. Or, you
may not have realized that a late payment would bring your score down as much
as it has. The lender will tell you exactly what you need to do.
Under federal law, you have the right to obtain a free copy
of your credit report from each of the national consumer credit reporting
agencies. Unfortunately, the three agencies refuse to work together to provide
a single report, so you’ll have to ask each for a separate report.
If you find an error – derogatory data that doesn’t belong
to you, or an account that shows the wrong balance, simply show the lender your
canceled check, release of lien or other proof that the credit report is wrong.
You’ll also have to correct the information yourself
separately with each agency, and it may take a few weeks for the agencies to
record the updated information.
In the meantime, work with your lender and do what he/she tells you to
do to get the best rate, including paying more than the minimums, paying on
time, and making sure what your debt to income is well within your ability to
repay all your loans.
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