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Credit is the biggest factor in
the interest rate you receive and what type of loan you
get approved for. There are three official credit reporting
agencies that provide credit scores to lenders. They are
Equifax, Transunion and Experian. The middle score of the
three scores is what is used to rank your credit. Credit
scores are viewed by lenders in various ways but as a general
rule there are "credit tiers". If you have the
ability you should always strive to get to a higher tier
before obtaining a mortgage.
Credit Tiers
are roughly:
| Score |
Rating |
Comments |
| 740 + |
A++ |
Will get almost any loan at the
best rate, full documentation or no income documentation. |
| 720 - 740 |
A+ |
Some restrictions on No Income Doc
loans. |
| 680 - 720 |
A |
More restrictive on
non-traditional loans and No Income Doc, cannot always
get the best rate depending on type of loan, lender
or other factors such as downpayment. |
| 640 -
680 |
A-/B+
|
More restrictive on
income and asset requirements, may have a higher rate
than the prevailing market unless other factors are
strong. Stated Income (No Doc) borrowers will need to
look at a secondary lender for their financing up to
100%. |
| 620 - 640 |
B |
More restrictive on
available loan programs and probably going to have a
higher rate than the prevailing market unless other
factors are strong. Stated Income (No Doc) borrowers
will need to go with a secondary lender but can still
obtain 100% financing. |
| 580 - 620 |
B-
|
Will have some challenges
obtaining a "good rate".Secondary lenders
are generally the only ones who will do the loan, whether
Full Doc or Stated. Rate is likely to be 1 - 2% higher
and is likely to have prepay penalties. |
| 520 - 580 |
C |
Will get a rate higher
than the prevailing market but can still get a good
loan if it is full documentation. Secondary loans are
likely to have prepay penalties. No Doc loans must have
5 - 10% down to qualify. Try to get to the next credit
tier if possible, call us
for strategies. |
| Below 520 |
C-/D |
May have some trouble
obtaining a loan, downpayment needs o be 20% or more.
Secondary lender's rates will be higher. |
How to fix your credit
Many people are in the dark
about their credit, whether its their score or what factors
affect their scores. It’s getting easier and easier
to obtain the information you need to effectively manage and
improve your score.
If you are considering purchasing
or refinancing a home then obtaining a credit report on yourself
and anyone else who is to be on the loan is an excellent idea.
When you sign up online you don't log an inquiry and you can
often obtain your report for free for 30 days on a "trial
membership" basis.
Factors that impact your
credit score in order of significance:
1. Late Payments, Collections, Bankruptcies, Foreclosures,
Past Dues
2. Outstanding balances on accounts vs. credit limits
3. Length of Credit History
4. Types of Credit
5. Inquiries
Tips to help your score:
- Don’t close
old accounts that help to establish your length of credit
history. This is a common mistake.
- Keep your balances to
30% (or less) of your credit limit.
- Avoid opening new credit
accounts that you don't need or “credit surfing”.
- Pay all of your bills
on time. Any unpaid bill, no matter what it is, can show
up on your credit report as a collection.
- Dispute and attempt to
remove any derogatory entries on your credit report and
document your efforts.
Call
us for a free credit consultation
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