Most lenders rely on a credit score, called a “FICO score” to determine a Borrower’s credit worthiness when applying for a mortgage. Your FICO score or number may determine what type of interest rate and loan program you are likely to be offered from any one lender. Each lender may have different guidelines and requirements to fit their individual loan programs. Your FICO score is comprised of a compilation of your credit history from the three major credit reporting bureaus, Equifax, Transunion, and Experian. Since each credit bureau may collect your credit data differently, an average score of the three bureaus is deemed the most accurate. In general terms, a score of 720 or better will mean that your credit risk is very low and you may be offered a preferred low interest rate and several loan program options. A FICO score in the range of 660 to 719 is still acceptable for several different loan programs. A score of 620 to 659 indicates a Borrower shows a higher degree of risk to default on a loan, so different guidelines may apply than for a Borrower with a higher FICO score. Under 619, a Borrower is generally considered a high risk for default. A high risk Borrower may still qualify for a loan, but the interest rate or terms may not be as favorable as of those offered to a low-risk Borrower.
How do I establish credit to qualify for a mortgage?
If you are a young Borrower, or a new Borrower, with little or no credit history you can establish credit by working for two years, paying off something small, like a student loan each month, and get one debit card and pay it off each month.
Most lenders rely on a credit score, called a “FICO score” to determine a Borrower’s credit worthiness when applying for a mortgage. Your FICO score or number may determine what type of interest rate and loan program you are likely to be offered from any one lender. Each lender may have different guidelines and requirements to fit their individual loan programs. Your FICO score is comprised of a compilation of your credit history from the three major credit reporting bureaus, Equifax, Transunion, and Experian. Since each credit bureau may collect your credit data differently, an average score of the three bureaus is deemed the most accurate. In general terms, a score of 720 or better will mean that your credit risk is very low and you may be offered a preferred low interest rate and several loan program options. A FICO score in the range of 660 to 719 is still acceptable for several different loan programs. A score of 620 to 659 indicates a Borrower shows a higher degree of risk to default on a loan, so different guidelines may apply than for a Borrower with a higher FICO score. Under 619, a Borrower is generally considered a high risk for default. A high risk Borrower may still qualify for a loan, but the interest rate or terms may not be as favorable as of those offered to a low-risk Borrower. To order a copy of your FICO score, contact Fair, Isaac Corporation at: www.myfico.com
To improve your FICO score, avoid opening new charge accounts, buying a car or furniture on time or looking on the internet for low rate credit deals between the time when you receive a loan commitment and the time you close.
Copyright © 2003-4 Sandy Gadow. This column may not be resold, reprinted, resyndicated or redistributed without the written permission from Escrow Publishing Company.
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