| |
YOUR CREDIT REPORT -- WHAT DOES IT MEAN? Your ability to get a loan at favorable rates rests largely on how well you have handled credit in the past. You will want to check your credit reports -- the computerized records of the loans, credit cards, mortgages, bankruptcy filings and other financial things lurking in your past. Lenders take a close look at both credit reports and credit scores when evaluating borrowers. By checking your credit history before calling a broker or logging onto a lender's Web site, you can see if it contains any mistakes and correct them. That will keep your credit score from being artificially low. Mortgage companies will take the information contained in the credit report and use it to compute a credit score, or numerical representation of your credit worthiness. (This is often called a "FICO score" after Fair Isaac & Co., the firm that created the most commonly used formula.) Scores range from the 300s to about 900, with the vast majority of folks falling in the 600s and 700s. The higher the score, the less risky you are as a borrower. What has the biggest impact on your credit score? 1. Past delinquency: People who have failed to make payments in the past tend to do the same in the future. The more recent the delinquency, the more important it is. A 30-day delinquency in the past 12 months really hinders your chances of getting a mortgage at a favorable rate.
2. The way credit has been used: Someone who is maxed out or close to the limit on a credit card is considered more risky.
3. The age of the credit file: The longer you have had credit, the better.
4. The number of times a person asks for credit: The system frowns upon those who have initiated several requests for credit cards, loans or other unsecured debt instruments over a short period.
5. A customer's mix of credit: Someone with only a secured credit card is generally riskier than someone who has a combination of installment and revolving loans. For more details on credit scoring and credit ratings, click here.
Once you have checked your credit, and your credit is OK, consider getting pre-qualified (a lender will review your financial history before you find a home) or pre-approved (a lender will check your credit and provide you with a letter stating you've been pre-approved for a certain amount). Both will help you, but a pre-approval will help more by showing everyone you're in a position to move.
There! That's a quick look at the mortgage world, and how you can save by preparing yourself for the financial inspection that goes with it. Research will help you find the best deal on mortgage rates.
You may not be ready yet to shop for a mortgage, but it would be a good idea to start keeping an eye on the rates.
| |
