Credit scores and the effect on your mortgage approval in California
(guide to mortgage loan approval in California)
A credit score essentially is a numerical “score” based on one’s ability to pay credit/debt over time. It is used by all California lenders to assist them in determining which home loan program and interest rate can be made available to you based on your credit history. We will give you a guide on how to qualify for a beneficial home loan program and would be glad to assist you in your California home loan program today.
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The mortgage industry started utilizing “scoring models” in the early 1990’s. The use of scoring models in the mortgage industry came about as the major secondary market players known as Fannie Mae and Freddie Mac developed new automated underwriting systems. Those systems compare payment histories from literally millions of similar loans coupled with the credit score of the applicant.
If someone can go to a Mercedes dealership and drive off the showroom floor an hour later with a $100,000 car (a depreciating asset), they should be able to obtain a home loan (an appreciating asset) the same way. The mortgage industry has been slow to adapt to this, but finally scoring models now figure prominently in the future of how people obtain home mortgages.
There are three major companies that hold your credit and background information, Equifax, Experian and TransUnion. When a consumer obtains credit, the creditor reports the payment history to these companies. This is generally done monthly.
These companies simply accept the information as it comes in electronically. This is very important to remember, they DO NOT check the accuracy of the information just what is reported by the creditor at the time.
Trivine mortgage & financial services has the best loan programs available anywhere. We hope you will think of us when you, your friends or relatives are shopping for a home loan.
How Credit Scores Are Used
When you apply for a mortgage, your lender will request a tri-merge (all 3 bureaus) credit report from a credit reporting company. This company pulls together a credit report electronically.
Along with the information, the credit reporting company receives a numerical score. The score represents a composite of your credit history, employment, ability to save, and so on. The most well known of these scores is known as the FICO score, which was a model developed by the Fair-Isaacs Company. Scores can change literally daily, depending on the information received at the repositories.
Congress is pressuring the credit repositories to be more accountable for the accuracy of the information they report and to divulge what goes into the scoring models, to help people better understand how to improve their scores faster.
Why is this important?
The lending industry is moving toward “risk-based” pricing. This means that the higher one’s credit scores, the less paper they will have to provide to prove that they are creditworthy AND the interest rate and/or fees a borrower pays will be based on the level of their scores and credit history.
This system, while perhaps be unfair to some and will be fantastic for those who maintain excellent credit. It’s one way that good credit risks can be rewarded.
Important Hints:
- Pay all your payments on time.
- Don’t apply for any new credit unnecessarily. Every time you sign and return a new credit card offering, or open an account at a store, an inquiry will be generated and that can reduce your score.
- If you must maintain credit card balances, try to keep them at a level that is 40% – 50% of the maximum credit limit. In other words, if the credit limit is $5,000, try to keep your running balance below $2,000.
- Consolidating all your credit cards can hurt your score as well.
- If you get into a dispute and it isn’t a huge amount, pay it and move on. Having one or more collections, even if they are small amounts, can really hurt your score.
If you have recently obtained your credit report and you are not happy with what was reported, you can take steps to correct the erroneous information (false information) on it. There are also proactive things you can do to improve your scores, if you are anticipating applying for a mortgage anytime soon.
Credit Score Guidelines
As a key component in evaluating you as a credit risk, lenders use this information to see if you have missed payments, carry high balances, or are in other ways over extending yourself financially. The following categories are a general guideline to borrower creditworthiness (these are general guidelines only – other factors may be included in your credit evaluation and the approval process):
Excellent Credit
Credit scores of 720 and above
- 5 trade credit lines (credit cards, auto loans, mortgages) each having been open for at least 24 months
- All accounts have been paid as agreed
- No public records of bankruptcy, foreclosure, serious past due accounts, or collections within the last 10 years
- Low current credit balance relative to maximum available credit limit
- Minimum number of credit inquiries
Very Good Credit
Credit scores between 680-719
- 5 trade credit lines (credit cards, auto loans, mortgages) have each been open for at least 24 months
- All accounts have been paid as agreed
- No public records of bankruptcy, foreclosure, serious past due accounts, or collections within the last 7 years
- Low current credit balance relative to maximum available credit limit
- Minimum number of credit inquiries
Good Credit
Credit scores between 620-679
- 5 trade credit lines (credit cards, auto loans, mortgages) have each been open for at least 24 months
- Most accounts have been paid as agreed, with only occasional late payments
- No public records of bankruptcy, foreclosure, serious past due accounts, or collections within the last 10 years
- May have significant current credit balance relative to maximum available credit limit
- Several recent credit inquiries
Fair Credit
Credit scores between 580-619
- 3 trade credit lines (credit cards, auto loans, mortgages) have each been open for at least 24 months
- Most accounts have been paid as agreed, with only occasional late payments
- No public record of bankruptcy, foreclosure, serious past due accounts, or collections within the last few years
- May have significant credit balance relative to maximum available credit limit
- Several recent credit inquiries
Poor Credit
Credit scores 579 and below
- One or more accounts have not been paid as agreed
- May have had a bankruptcy, foreclosure, serious past due accounts or collections
- High number of recent credit inquiries
- Proportion of revolving balances to revolving credit limits is too high
Your credit score plays a huge role in the mortgage loan program in California that you can qualify for and what your interest rate and mortgage payment will be each month. Make sure you take care of your credit and keep up on what is on your report.
FOR FULL ASSISTANCE ON HOW TO KEEP UP WITH YOUR CREDIT SCORE FOR YOUR UPCOMING MORTGAGE LOAN IN CALIFORNIA CALL US TODAY!
888-892-9805
