When you are looking to purchase a home, all roads lead to the components of a credit score and mortgage lender. It is unavoidable unless you have the option of paying cash. How much do I have to make? How much is too much debt? What does my credit score have to be? These are all viable questions and there is no easy answer. You can bet that all loan officers want to give you a loan, that’s how they stay in business. However, they also have guidelines as to how much risk they are willing to incur to lend you that money. The way they minimize their risk is by utilizing your credit score.
Credit Reporting Agencies
There are three reporting agencies that are utilized when reviewing your credit score. We have no idea why there is three, that question is one for the ages. The three reporting credit bureaus are Equifax, Experian and Trans Union. All of these agencies calculate your credit score a little differently. What we do know is Equifax scores range from 334 up to 818. Experian’s range starting at 320 and go up to 844. Trans Union range from 309 to 839.
The calculations are largely based on the prompt payment of your bills, the total amount of debt you owe creditors, and any derogatory reporting from the creditors such as non-payments and late payments. Late payments are calculated differently depending on the length of time the bill was not paid as well as any liens against you. Inquiries into your account can also count against you if there are numerous requests in a period of time.
Once you complete an application with a loan officer they are going to pull your credit score and history. This will give the lender a big picture of your financial history and how much risk your history may or may not be to the lending institution. When you have a high score you will qualify for better terms on your loan such as interest rate and amount qualified for. Do not fret if you are not initially qualified. Most lenders will be able to get you on track and let you know what you can do to correct any problem areas in your credit history.
Everyone has the right to a free copy of their credit report. You can receive your free report once a year. This can be requested from each of the three credit-reporting bureau’s. To pull your free reports you can go to AnnualCreditReport.com or FreeCreditReport.com.
Once you review your report you may very well find information that does not belong to you. In these cases you can provide the loan officer and the agencies with corrected documentation to help get any misreporting corrected and remedied. This may take some time but will be worth it. Contact us today for more information on purchasing a home.