Credit & Qualifying for a Mortgage
Credit Reports - What do they show?
If you want to buy a home in New Hampshire, it’s useful to have credit. Credit is nothing more than an accounting of your payment habits to creditors: credit card companies, auto payments, landlords, utility bills, doctor’s bills, etc.
A “credit report” contains only the information typically seen by lenders or credit grantors.
A “personal credit report” (or “Consumer Disclosure”) is a specific type of credit report that is acquired by consumers that is generally only seen by the consumer. Generally, the report is detailed and in a format that is easily understood by the consumer. As a consumer, you are entitled to a free copy of your personal credit report every year.
The Fair & Accurate Credit Transaction (FACT) Act entitles consumers to an annual credit report for free at www.annualcreditreport.com. You can also acquire your report from any number of credit reporting services that specialize in providing credit reports to consumers like www.creditkarma.com or www.privacyguard.com. You may pay a small fee but you’ll get a merged report that will be easier to understand and a phone number to call if you need assistance from a counselor.
What information on your credit report should you verify for accuracy?
When you fill out a credit card application, you are providing the credit information industry with updated information such as your name, current and recent addresses, Social Security number, date of birth, and current and previous employers. It’s not a bad thing that your credit file is up to date. Just be sure to complete all applications for credit as accurately as possible.
Most of your credit report consists of details about your credit accounts, including the date the account was opened, the credit limit or amount of the loan, the payment terms, the balance, and a history that shows whether or not you’ve paid the account on time.
Can you believe a late payment will stay on your report for seven years? (Up to 10 years if it was bankruptcy related.) If you don’t have a credit history, you may be able to document credit references manually in the form of an “alternative credit report.”
Credit reporting agencies record an inquiry whenever your credit report is shown to someone, such as a lender, service provider, landlord, or insurer. Inquiries remain on your credit report for up to two years and can lower your credit score as much as five points depending upon the time period, the number of inquiries and other factors.
Matters of public record obtained from government sources such as courts of law - including liens, bankruptcies, and overdue child support - may appear on your credit report for up to 10 years. OUCH!
What is NOT included in your credit report:
- Checking, savings, and investment account information
- Bankruptcies that are more than 10 years old
- Charge-offs or debts placed in collection that are more than seven years old
- Political affiliation
- Medical history
- Criminal records
What is a Credit Score? How does your Credit Score Rate?
A credit score is your credit report, summarized by a number that represents your creditworthiness (sometimes referred to as your FICO score). In simple terms, it is a measure of the likelihood that you will pay back the money you borrow.
Fun fact: Credit scores have been available to home lenders since the 1950s. However, they did not become widely used until the 1980s.
How is my score determined?
Your credit score is determined by a mathematical formula or model that places numerical weight on different factors in your credit history including:
- Late payments – how many and how late.
- How long you’ve had established credit.
- The amount of credit used (your current balance).
- The amount of credit available (your high credit).
- Residence history (how long you have lived there).
- Employment history (how long you have been at your job).
- Collection and charge-offs (outstanding bills you never paid).
What is a Good Score?
There are many different models but for a mortgage, most credit scores we see range from a low of 500 to a high of 800.
- A score in the 500s is not favorable.
- A score in the 600s is the most common and usually acceptable.
- A score in the 700s is clearly a wonderful thing.