How Your Credit Score Will Affect Your Mortgage Loan Application.
Regardless of whether you are purchasing your first new home, financing an investment property, or refinancing an existing home, your credit score will be a major consideration in the loan qualification process. Poli Mortgage will run and review your credit score and credit history to determine your ability to repay the loan you’re applying for. Investors will use this information to evaluate the potential risk should we agree to qualify you for the loan. The higher your credit score is the lower risk you will be as a borrower.
Knowing what your credit score is prior to initiating a mortgage transaction can significantly streamline your Poli Mortgage loan process. If you are not sure what your credit score is, your Poli Mortgage Loan Officer can obtain it on your behalf. Poli Mortgage Group recommends you refrain from searching for your credit score online. There are a number of websites that provide credit scores, but these sites generally do not use information from the three major credit bureau sources Poli Mortgage Group utilizes to qualify loan applications.
Your credit score, also known as a FICO score, can range from 300 – 850 (850 being the best possible score). Your credit score is monitored and reported by three main credit bureaus known as Equifax, Trans Union and Experian. Your credit history begins the first time you apply for credit. The action initiates a credit inquiry to the credit bureaus and also establishes a profile in the system. Credit scores are determined using five types of information about you:
- Payment history = 35%
- Open accounts and balances = 30%
- Length of time any account(s) have been open = 15%
- Types of credit used = 10%
- Credit inquiries = 10%
To maintain a good credit score, it is important to avoid all of the following actions:
- Making late payments (even one month)
- Utilizing more than 30% of the total credit limit on any credit card(s)
- Closing credit cards you have not used for some time
- Frequently opening new credit card accounts
- Routinely transferring monies between credit cards to obtain rate advantage
Delinquencies on your credit report will have an impact on your credit score and so does the length of time which has passed since your last major delinquency. A bankruptcy may stay on your credit report for up to 10 years, but additional credit may be acquired once a two year timeframe has passed.
Poli Mortgage Group’s residential mortgage program allows borrowers to qualify with a credit score of 640 or higher. A higher credit score may also afford our borrowers a lower interest rate, along with a broader range of loan program options.
Managing your credit when applying for a home mortgage loan.
If you have little or no credit history, you should establish at least two lines of credit (credit card, auto loan, etc.), keep the accounts open for at least 6-12 months and make all payments on time. During this time, you should try to keep your account balances below 30% of your total credit limit and refrain from initiating any new credit inquiries.
In some circumstances, and with the right home loan program (FHA), Poli Mortgage Group may accept payment histories on non-traditional items such as utility, cell phone, and insurance bills.
If you do have credit history, once you receive your credit report, you should review the report in detail to ensure no erroneous information is listed. If you find inaccuracies, contact the creditor immediately to discuss and correct the situation. You will also need to send the credit bureau(s) a written inquiry of dispute.
If the errors on your report are validated, request the credit bureau(s) to provide written correspondence. It could take 30 to 45 days for the bureau(s) to investigate the claim and report back to you. Your Poli Mortgage Loan Officer will also be happy to help or advise you how to handle credit disputes.
Please also be aware, any previous mortgage company credit checks will show up as inquiries on your credit report. Be sure to share this history with your Poli Loan Officer prior to ordering your credit report, so they can help you explain the unusual amount of activity on your loan application.
Steps to take to improve your credit score.
The most obvious way to improve your credit score is to pay all of your monthly charges on time. If you are having difficulty managing your debt, contact your creditor(s) to request a modification to your monthly payment(s). Additionally, it is a good rule to always keep your balances under 30% of your total available credit.
There are also reputable credit repair companies who will assist you with improving your credit score. Most credit repair companies will provide you with a report identifying opportunities for you to improve your score. The report also typically includes recommendations on the best course of action you should take, but be guarded as there are some credit repair companies that are not as reputable as others. If you are interested in going this route, ask your Poli Mortgage Loan Officer for a credit repair company recommendation.