Home Mortgage Rates And Your Credit History
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A borrowers record of various personal debt ie: credit cards, consumer debt, etc. and whether payments were made on time. Mortgage lenders will review the borrowers credit history to help determine their loan qualifications and the terms of the loan.
With recent changes to the laws concerning your credit report, you can now obtain a free annual credit report from each of the three major credit reporting bureaus. By using this free credit report to protect your good credit rating, or discover why your credit is bad, and you can ensure that you qualify for the best loan rates available.
Although identity theft is getting a lot of attention, credit reports are more likely to have inaccuracies that can cause problems. For example, an account may be reported as “paid”, but still show a balance due. Also, some small creditors are really good at reporting late payments, but not so good at reporting paid off accounts. Occasionally, a creditor will give an account to a collection company, and both will continue to report delinquencies, although only one is legally entitled to.
Correcting inaccuracies in your credit report is as important as looking for evidence of identity theft.
Having a good credit history means it will be easier for you to get loans and lower interest rates. Lower interest rates usually translate into smaller monthly payments.
As negative items in your credit history get older your credit will improve and your credit scores should increase. Your credit history plays the biggest role in determining your credit score and should not be taken lightly. Your credit payment history accounts for 30-40% of your entire credit score.
If you have a dispute in your credit history notify the consumer credit agencies. If the inaccuracy cannot be verified or is inaccurate, they are required to remove the information.
Your credit history plays an important part in determining the level of risk associated with lending you money. Borrowers whose credit history show timely payments and responsible use of credit are considered low risk. These borrowers receive the best rates and have more loan options available to them.
Your credit paying history is not the only factor that counts towards evaluating your credit worthiness. There are many factors that contribute to your credit ranking, including: debt service ratio’s, length of credit, new credit, credit inquires to just name a few.
Your credit history or lack there of will determine your credit score. If you have credit cards that are at there limits or multiple late payments on your credit report will lower your credit score and increase your interest rate when applying for a mortgage loan.
Before applying for a mortgage loan, it’s a good idea to order your own credit report to see if their are any errors that need to be disputed. Innacuracies on your report can drop your score significantly. You will pay for a lower credit score with a higher interest rate, which may cost you thousands of dollars in higher monthly mortgage payments over the life of the loan.
Why Is My Credit Bad
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When you begin the process of securing a home loan, often you will compare mortgage rates first. It is soon after many find that their credit history is nto as good as they thought. Your credit maybe considered bad and causing a low score for a number of reasons. While there are numerous reasons for bad credit some of the more common ones are as follows. You have numerous credit cards that are maxed out or close to the credit limit, you have unpaid judgments or collection accounts, you have 30 day late payments showing on your payment history. All of these examples can cause severe drops in your credit score.
One area people overlook that can negatively impact their credit report is failing to honor mobile phone contracts. Cell phone companies give away free phones to customers who sign on with their services for a specified period of time, usually one to two years. Terminating subscription to the phone service before the expiration and failing to reimburse the phone carrier for the cost of the free phone is considered breaking the contract. Cell phone companies would then report to the credit bureaus and cause a blemish on the credit history. Such blemishes are not serious, but they nonetheless lower credit scores.
Credit scores generally range from about 350 to 850.
* 800+ = great credit
* 700-799 = good credit
* 600-699 = average credit
* 500-599 = bad credit
* under 500 = hard to get a loan at all
Your credit can be bad for a variety of reasons:
Late payments
High Account Balances
Bankruptcy
Collections
Chargeoffs
To minimize negative on your factors you will need to pay down balances, make payments on time, dispute incorrect information, and let the passing of time lessen the impact of past bad credit.
Too many inquires at one time can affect your credit score.
If your credit score is low because of a high balance on a credit card, transfer some of the balance to another card. Try not to open a new card because to do this can also reduce your score.
One reason why your credit may be bad is because of erroneous information reported on your credit report. This can happen to anyone and is actually quite common. This is one reason why you need to check your credit report out at least once per every 12 months. By checking you credit report for free you can keep an eye on your credit and make sure that you take care of any erroneous information when it happens, not when you are trying to apply for a loan and it comes as a surprise to everyone. Utilize your one free annual credit report each year to take a look over your credit to make sure everything looks well. There are many reasons as to why credit report errors can happen so make sure that if errors do happen to you that you rectify the situation immediately.
Maintaining high balances on your credit cards and other revolving debt negatively impacts your credit score. Paying down credit cards balances below the 70%, 50%, and 30% thresholds is a quick way to boost your credit score.
Paying down your credit card balances to around 30% will help your score. If you can, try to keep the balance at that level at all times. If you need to raise your score quickly, and don’t have the money to pay down your balances, you may request that your creditors increase your credit limit. This will in turn lower your balance in comparison to the limit.
Only use this technique if you are responsible with your credit. Once your limit is increased, it may be tempting to go on a shopping spree. Know that if you do this, you will be in a much worse situation than when you started. Not only will you have more debt, but you will increase your ratio of balance to limit.
You should frequently check your credit report at least twice a year to know what your credit profile looks like. Sometimes erroneous items appear on credit that you may not know about and when it comes time to utilize your credit it can affect the rate you will get. Depending on the state you live in, you are allowed at least one free credit report per year from each of the three major credit bureaus; Experian, Equifax and Transunion.
Watch on your credit report for companies that are illegally renewing the chargeoff date every month in order for the account to never gain history. These companies you should call and address this immediately.
Here is a general guidline which outlines the five major types of information used to calculate a FICO score. Each type of information counts as a percentage of a total FICO score:
- 35% Payment History
- 30% Amounts Owed
- 15% Length of Credit History
- 10% New Credit
- 10% Types of credit
There are several ways to increase your credit. However the fundamental principle is the bills must be paid on time. This doesn’t mean by the due date. For the sake of your credit a payment must NEVER be more then 30 days late. If you are acquiring 30 day lates on your credit then your credit standing will deteriorate quickly. Judgments also hurt your credit even if you pay them.
It is also important to note that a credit score is a snapshot. Although it shows your payment history, length of credit, etc., having inaccurate (negative) information removed from your credit bureau report will immediately reflect an increase in your score.
If you do decide to pay off some of your credit cards, be sure to leave the cards open. The credit bureaus look favorably upon accounts that have been open for a substantial period of time, especially if they are showing a zero balance.
Remember that a credit score amounts to a prediction of how likely it will be that you go 60 days late or more on your mortgage in the next two years. One thing that will really lower this score is if you carry high balances on revolving debt and then start making a few of the payments late. This is the pattern of a consumer who is close to getting in trouble with debt.
Things that may go into a collection or judgment that will hurt you credit include unpaid medical payments, unpaid utility payments, and unpaid cell phones or cable payments.
If you have old collections on your credit report, paying them off now can actually hurt your credit. Credit Agencies look at the age of a delinquent item: if you pay it off the “date of last activity” becomes recent instead of old. There are many reputable credit repair agencies or credit counselors that can help guide you in restoring your credit.
Improve Your Credit Score One Step at a Time
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If you plan to apply for a mortgage or a loan in the future but you have had credit problems in the past then you need to improve your credit score before you can do anything else.
Your credit score is a very important number. Every time you apply for any kind of financial assistance a lender will take a look at your credit score. If you are approved for credit then the number will play a role in the terms of the loan and the interest rate.
A higher credit score is much more advantageous than is a lower one. If you have a lower score you may be approved for credit but you will have a higher interest rate because the lender considers you to be a high risk. This is one reason that you need to work as hard as possible to improve your credit score.
Before you can figure out how to improve your credit score it helps to understand what it is made up of. Your credit score is made up of five specific areas:
· Payment history makes up 35 percent
· Your debts make up 30 percent
· The length of your credit history accounts for 15 percent
· New credit makes up 10 percent
· The credit that you are using at present accounts for 10 percent
In order to improve your credit score one of the most important things you can do is to get into a habit of paying all of your bills on time. This is the most vital aspect that plays a role in your credit score. If you have any payment that is past due by 30 days or more then this can be a black mark on your credit rating. Negative marks such as this can show on your credit report for as long a period as seven years. Don’t let this happen to you. If you want to improve your credit score then pay all of your bills on time. Do not let a credit card bill or utility bill cause you problems with your credit.
The money you owe on any given debt makes a difference in your credit score. To improve your credit score do not live beyond your means. Do not overuse credit and do not borrow more money than you can afford to pay back in the allotted period of time.
If you presently have a great deal of debt then it would do you well to take steps to cut back on extravagant spending. To improve your credit score you must become responsible financially. Pay your bills in a timely way. Pull up your financial straps and improve your credit score. Take it one step at a time and you will find that you are making progress.
Bad Credit Mortgages
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There are many programs available for individuals with bad credit. Typically, the interest rates are higher than other programs for people with good credit. A competent mortgage broker should be able to give you your options.
Many people have bad credit because they are simply over extended. They have have lower credit scores due to carrying heavy loads of debt and sometimes missing payments because they have so many monthly payments. By using your mortgage to consolidate debt, you can improve your credit score. In this case a bad credit mortgage actually becomes a tool to improve your credit score.
Banks assess default risks primarily by credit history, capability to repay the loan, and the amount in relation to the value of the property the home buyer puts towards the house. As long as one can demonstrate enough income and sufficient down payment, bad credit profile usually is not a problem getting a mortgage.
I think there are more lenders working on loans for people with less than perfect credit than for those with perfect credit…Probably because if you have perfect credit, you are the exception, not the rule…
Some people with bad credit count themselves out of the game before having their credit reviewed by a qualified mortgage professional. With the many sources mortgage brokers have available to them they may be able to get you the financing you want now rather than having to wait. The only way one can be sure of what is available for you is to have a mortgage broker consult with you abuot your credit situation and make recommendations as to what the best possible course of action might be.
If you have been told that you have bad credit, don’t think that you don’t have any options. People with bad credit typically have FICO scores which are 620 and below. Missed payments on credit cards, installment loans, mortgages, or any public records also affect credit in a negative manner.
Luckily, many mortgage professionals are affiliated with lenders who help individuals and families who have found themselves in a tight situation. These lenders present loan options which are very flexible and allow people to utilize their home’s equity as a compensating factor for their bad credit situation.
There are also loans available for people who have been delinquent on their mortgage payment. You may still qualify for a loan even if a notice of default has been filed on your property. Consult with your mortgage professional to review your options.
Many people are fed up with renting and feel that their credit situation is keeping them from a home loan. If you feel this way, you are definitely not alone. Thousands of individuals and families across the US think that they are stuck in a rental due to bad credit. The good news is that, in many of these cases, the individuals think that their situation is much worse that it truly is.
Lenders are getting more and more aggressive and coming up with new types of financing each year. This is allowing many Americans to be able to buy a home with no money down and even if they have bad credit. Consult your mortgage professional to find out what options you have and how much of a home you will qualify for. Even if you can not qualify for the financing you desire or require at this time, a good mortgage professional will be able to let you know what can be done in order to qualify for the financing you need in the near future.
If you are looking for a bad credit loan, your best bet is to talk to a mortgage broker, not a bank. Banks will almost certainly turn you down, whereas mortgage brokers have access to hundreds of lenders and can find some that would fit your circumstances.
