Credit Score

 Credit Score

Applying For a Mortgage Loan?

First Check Your Credit Score!


You’ve always loved the area and now you’re planning to buy a new home in Michigan. Great idea! But first, we recommend reviewing your credit score before applying for a mortgage loan. It is a critical factor in determining your creditworthiness and mortgage rates. Monitoring your credit report and resolving issues early on can help raise your score.

Where Will You Find Your Credit Report?

The good news is that your credit report is easy to obtain. A 2003 federal regulation gave consumers access to one free report per year from each of the three main reporting bureaus: Equifax, Experian, and TransUnion. An online report is generated after you answer a series of security questions, which typically take about 10 minutes to complete. 

Many companies, financial institutions and lenders use the Fair Isaac Corporation (FICO) model to calculate credit scores based on your report. Ranging from 300 to 850 points, 800 plus is exceptional, 740 to 799 is very good; 670 to 739 is the median range; 580 to 669 is fair; and 579 or lower is poor. First-time homeowners can usually secure an FHA loan (insured by the Federal Housing Administration) if their credit is 580 or over. 

Key Factors That Impact Your Credit Score Include:

• Your bill-paying history
• Current unpaid debt
• Number and type of loan accounts and how long they have been open
• Amount of available credit you are using
• An account sent to debt collection, a foreclosure, or a bankruptcy
• New credit applications 

Keep in mind that your FICO Score is only one part of what lenders consider when assessing creditworthiness. Income, length of employment, alimony and child support payments, are other important factors that come under evaluation. 

The Credit Score

Credit scores are created through a software program--there is no mystery. A trade line or line of credit does not weigh in or count as valid until it is one year old. The opening of a new trade line is only negative when you do not treat it properly. When you open a new credit card, you do not want to charge more than 20% of the available balance. Also, you want to make your first payment on that balance as soon as possible so that it will report into consideration given by the score/ credit model. The credit model will look at your overall cumulative balances versus your cumulative amount of credit available.

Then, it goes to levels--how long is the trade line open? A trade line that is open longer can have a higher balance, and not upset the model. By opening a credit card, and having a high available balance, it will contribute to your overall “picture” in a more positive way. It will look at each credit card, how long they have been open, and how much is owed against it, and lastly, how many delinquencies you have. Any delinquency less than 2 years old will have a minimal effect. A current late payment of 30 days can cost you up to 40 points on your credit score. Some companies, after you bring the payment current, will allow you a one time courtesy of removing the late payment after you bring it current (make an on-time payment). 

Collections

Collections can report every month or they can report sporadically. Anytime that you make a collection or make a payment on a collection, you should make the request to have it deleted from your report. Some companies will, some won't, but if you do not ask it is NOT going to happen. If they do remove it, then you will receive the points back which you lost when the collection reported against you. Collections that read as a charge off on your credit report no longer contribute after the 2 years and are not considered as debt that needs to be paid off after the mortgage company. 

Tips to Improve Your Credit Rating

The higher your score, the lower the interest rates lenders will be willing to offer you. Here are some ways to improve your numbers.

• Pay your bills on time
• Manage your credit cards efficiently
• Contact your creditors if you are having trouble making payments
• Reduce debt instead of moving it around
• Do not open new credit accounts unless needed
• Check your credit report from time to time at AnnualCreditReport.com or through the three main bureaus (mentioned above)
• Fix errors in your credit history

Need Help?

Need help determining which type of home loan is best for you? Looking for a low or no down payment mortgage loan? We are always happy to help! At Dividend Mortgage, our difference lies in helping you match the right lending tool to your needs. 

Call 269-321-8950 or contact us online to set up a consultation for a mortgage loan in Michigan. 

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