Credit Scores and
Mortgage Loans
&n=
bsp; It's
no secret that "easy credit" has caused a great deal of problems =
in
the housing and mortgage sectors and mortgage loans are more difficult=
to
get today then they were a year ago. All =
the
more reason to understand what lenders are looking for when they evalu=
ate
your credit standing and make their decision about giving you a loan.
Here are the top 10 commonly held myths surrounding
credit scores:
Myth #1: A credit score is a credit report. The credit report is a detailed listing of all debts and payments,
going back throughout an individual’s entire payment history, Ewing
explained. For each entry, it shows the creditor’s name, amount owed,=
the
highest balance owed, the available credit, whether the account is open or
closed (and who closed it), the number of late payments and whether the acc=
ount
is in default. A credit score is a number between 300 and 850 that is based=
on
complex formulas incorporating all the data in the credit report.
Myth #2: Those who are not in default do not need =
to
check their credit report. Everyone should check his or her
credit report at least once a year (quarterly is not a bad idea in
today’s market) to be sure the report contains no erroneous informati=
on.
Visit www.annualcreditreport.com for a free, no-obligation copy of the repo=
rt.
Myth #3: Checking a credit report damages credit. =
Reviewing your own credit information has no effect on a credit sco=
re,
Ewing said. Neither does a credit report review by a prospective landlord or
employer.
Myth #4: Everyone has one credit score.=
Credit score calculations are compiled using data from three diffe=
rent
credit scoring agencies (Equifax, Experian and TransUn=
ion).
The resulting scores might vary slightly among the three agencies if they h=
ave
slightly different information, but they will be similar.
Myth #5: Married couples share a credit score. If all of a couple’s accounts are joint,
their scores will likely be similar, but each individual maintains a unique
credit record and credit score. On the flip side, after a divorce, ex-spous=
es
need to follow protocol to have creditors remove either party from a joint
account.
Myth #6: Shopping for a loan destroys credit. It is true that “hard inquiries” - examinations of a
credit score in preparation for extending credit can have a small negative
impact on credit. However, credit bureaus take into account that consumers
might inquire about a loan from multiple mortgage companies or auto lenders.
“If multiple inquiries are received from the same type of lender with=
in a
14-day period, the credit scoring companies do not count each inquiry again=
st
the borrower,” Ewing explained. But credit card account inquiries to =
open
new accounts are counted individually.
Myth #7: To improve a score, close unused accounts=
. An important component of a credit score is available credit, or t=
he unused
credit that has been offered (on a credit card, for instance) but not used.
Closing unused cards removes those available balances from the equation and=
can
actually lower a credit score. Today, some banks are automatically lowering
limits or closing accounts to reduce their own credit exposure. Individuals
whose debt load is manageable should not experience an extreme effect on th=
eir
scores.
Myth #8: To boost credit quickly, just pay off bil=
ls. Credit scores reflect performance over time. Scores will not change
overnight.
Myth #9: For a fee, vendors can fix a bad score. Again, credit scores show historic behavior. Be cautious about
companies that claim to “fix” or “repair” credit.
“You yourself can remove inaccurate information,” Ewing said.
“Beyond that, be aware that some companies send credit scorers a delu=
ge
of letters asking that they verify - and in the process, remove all past
negative information. If and when truthful information is verified, however=
, it
will quickly return to the credit report.”
Myth #10: Never get help - it is too hard on credi=
t. It is true that credit counseling, debt settlement and bankruptcy =
all
can cause significant black marks on a credit report. “If you are in =
real
trouble, however, you can and should seek help,” Ewing urged.
“Which option you choose will depend on the severity of your situatio=
n.
Credit counseling can help to manage bills, and lower interest rates and
monthly payments to creditors. Debt settlement firms can negotiate to lower=
the
principal amount of your debts, typically providing a faster path to debt
freedom than credit counseling. Bankruptcy, an even more serious alternativ=
e,
should be discussed with a bankruptcy attorney.”
“Credit is important, but knowing the truth about credit migh=
t be
even more important,”
The moral of the sto=
ry
is to do everything in your power to manage your credit wisely. Pay on time, avoid maxed out balan=
ces and
use credit sparingly. Oddly enough, it is important that all mortgage
applicants obtain and use credit. The lack of credit history can cause
difficulties similar to derogatory credit. Lenders need credit informa=
tion
in order to do a risk assessment. If you have recently come out of
bankruptcy, it is critical to re-establish credit - but only that which you=
can
manage.
We deal with mortgage
companies and financial institutions on a frequent basis and have built a
relationship with many local lenders. If the buyer, property and
circumstances seem to fit, we are sometimes able to get a lender to se=
e beyond
the numbers to get a loan for our client. We don't get anything =
from
the lender and we don't ask anything from you. This is all part of be=
ing
a "Full Service Realtor" and doing what we can to make the deal w=
ork
for both the buyer and the seller, thereby, earning our commission on the s=
ale.
Call us at 205-612-9=
633
or email us today.