After 25 years in the Mortgage business I can act as an expert on credit scores and reports.
By Daniel at 14 December, 2009, 10:57 am
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The Mortgage industry looks at the 3 main reports Equifax Trans Union and Experien, and uses the Middle score of these 3 to determine your score. The score is call a Bankruptcy Risk Score. A lender wants to know the probability that they will be paid back what you borrow. The score is affected by a few important factors.
1) The payment history. Any new credit lines or loans will usually bring your score down 10-40 points.
Any debt which is matured for a minimum of 2 years with perfect payment history will improve your score. So do not close out all your lines if you have paid them off. Keep at least 2 open so you can demonstrate you are credit worthy.
1 30 day late payment will usually drop your score 50 points. 1 Charge off, Judgment, Tax lien or collection account will drop it another 50 points. The amount does not matter. It could be for $1.00 or $1,000.00 It is the same hit.
2) The ratio of available credit to credit used. If you use 50% or more of a line it will bring your score down. So keep your balances below 50% of available credit to insure a high score.
Lenders will price and or determine if you are credit worthy using both minimum scores and calculating you income to expense ratio. Many lenders have raised the bar. Prior to the crash 620 was the low score, today many are using 700 or 720 but a few may use lower and charge you a higher rate or limit the amount financed.
If you have issues on you history and want to challenge them, you can access the credit reporting companies directly online. They respond fairly quickly. Good luck.
- Mortgagexpert
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