Category: Credit Scores

To get a mortgage to purchase a home, you’ll need to show your lender you can repay debt. The best way to do it is by having a high credit score and a robust credit history. In the journey towards good credit, you may find some of your actions inadvertently have negative impact on your credit score. Let’s go over the difference between actions that give you good and bad credit.

GOOD CREDIT

Getting a home loan
If you have a mortgage and have made payments on time, you’ve given yourself an excellent credit boost. Mortgage debt is the single biggest contributor to overall American household debt, and handling it well will increase your credit score. Mortgage debt is considered good debt.

Having student loans
The average public university student borrows $30,030 to pay for their bachelor’s degree. College costs remain a significant financial challenge for many people. If you haven’t had to research tuition for a while, you may be surprised to hear how much it costs. Today, the average price for just one-year (tuition, room and board, books, transportation, and other expenses) is $25,290 at a public in-state college and $40,940 out-of-state. Thankfully, when calculating your credit, it’s considered a positive move to take on college debt. Regular on-time payments will improve your credit.

When considering your college cost and future career, aim to keep your student loans in line with your projected income. Some debt is unavoidable, but it should never be so great that it ruins your financial future. Generally speaking, try to keep your debt under $30,000 so you can afford to pay it off and get a mortgage at the same time. U.S. News has an easily understandable article on how much debt is too much.

>> Buying a home when you have student loan debt

Having an Auto loan
The average new car costs more than $36,000. Most of can’t pay that in cash, so we need a loan. It’s considered good credit since the interest rates are generally low and there is a set number of payments you’ll make until it’s paid off. As long as you make your payments on time, auto loans aren’t considered bad credit.

NOT SO GOOD CREDIT

Using credit cards
Credit cards typically have higher interest rates than car loans, student loans, or mortgages – often above 20%. If you only pay minimum payments, it will take you a surprisingly long time to pay back your debt. And the types of things we buy with a credit card are depreciating assets like clothes, furniture, food, events, and gas. There’s nothing wrong with these types of purchases or having a credit card, but after you calculate your interest payments, the true cost of the item is much higher after it was added to your credit card. Having credit card debt doesn’t indicate you’re taking debt towards a more financially stable future (like with a home or student debt), so it’s generally considered harmful to your credit.

Making late payments
If any payment is more than a month late, it may be reported to a credit bureau. This includes payments to credit cards, lenders, even utility providers like your electric or water company. Negative information can be reported for seven years.

Maxing out a credit card
Credit utilization is the amount of money you have used compared to the credit limit on the card. Generally, try and keep your credit card balance low. A maxed-out card can lower your credit score by quite a few points.

Requesting too many loans
When you apply for a credit card or a loan, the lender will do a hard inquiry into your credit to see your history and score. For most people, a hard inquiry will cost about 5 points and remain on your credit report for two years. If you’re shopping for a good rate, each similar inquiry will not continue to negatively impact your credit if they’re done in the same time period.

A lot of factors play into your credit history and score. To see yours, visit annualcreditreport.com. If you have any questions on how your credit will impact your ability to secure a home loan, reach out to your mortgage lender. We offer many types of home loans – some work for people with great credit scores while others are designed to give those with a troubled credit history the help they need to get a home. Don’t lose hope. Work with an expert to help you find the right path towards your home loan goals.

One of the first steps in applying for a loan is having a home loan lender check your credit to see what you’d qualify for. What does that mean and what impact will it have on your credit score?

Your lender will see your credit report
You begin building your credit history with your first credit card or loan. The history of how you handle your credit builds your credit report. Your home lender will request a copy of your credit report from one of the three major credit reporting bureaus – Equifax, Experian, or TransUnion. Their report includes the following about your credit:

Personal identifiable information – As example, your social security number, date of birth, name, and employment information. This is used to verify your identity.

Credit accounts – A list of any credit accounts you have. This includes credit cards, auto loans, mortgages, student loans, etc. Your report shows the date you took out credit, the credit limit or loan amount, your payment history, the account balance, and whether you’ve made payments on time.

If any of your accounts went into collection (even if they weren’t credit accounts), there will be a record of it on your report for seven years. Paying off the debt will not remove the record from your report faster.

Credit inquiries – A list of times when companies have pulled your credit history. Only those made in the past two years remain on your report and only those done within the last year impact your credit score.

Public records – A list of instances of bankruptcy. Chapter 7 bankruptcy remains on your report for ten years and Chapter 13 will remain for seven.

Your credit will take a small hit
When your home lender requests a copy of your credit report from a credit bureau, it indicates to the credit bureau you’re looking to take on additional debt. It results in a small negative impact on your score – usually five points or less. It’s an unavoidable part of getting a home loan and your score will bounce back again in a few months.

Don’t let this small hit on your credit keep you from contacting other lenders to find a better rate or home loan term. Within a 30-day window, you can have other home lenders pull your credit report without it impacting your score again. Credit bureaus know it’s a good idea for consumers to shop around to find the best rate, so they won’t penalize you for it.

You’ll get unsolicited credit offers
It’s common to start receiving phone calls or letters from other lenders after your credit report is pulled. How did these other lenders know you were looking for a loan and why are they contacting you?

When your home lender requests a copy of your credit report, it alerts the credit bureau that you’re looking for a loan and they turn this knowledge into a commodity. Within 24 hours, the credit bureau will sell information about you and the loan you’re applying for to lending agencies. They can provide your name, address, credit score, and type of loan you applied for.

Some lenders will buy your information (called a trigger lead) from the credit bureau if, based on your data, they would like to do business with you. They will call, email, or mail you their own mortgage offer which may be better than the one your lender is giving you. In theory, the more offers you get, the more likely it is that you’ll get a good deal. That’s why selling and buying trigger leads is legal in all 50 states.

Mann Mortgage has made the decision not to purchase trigger leads for our competitors’ customers. We feel it’s an invasion of privacy that can expose people to identify theft. If you are currently working with Mann Mortgage and have any questions about the offers you receive or who an offer came from, please contact your Mann Mortgage lender right away. They will be able to help you.

Remember – your credit score is only part of your loan application
Your credit score and history are important components of your home lender’s decision on whether to extend credit to you. They’ll also consider the length of your credit, your down payment, your debt-to-income ratio, your total assets, and your current income. Your lender will take a holistic view of your financial situation to determine whether they’ll extend credit to you.

>> Once a year, you can check your own credit score for free and without negatively impacting it at Annual Credit Report.com.

When you’re ready to get a home loan, contact your local Mann Mortgage home loan experts. In addition to going over your credit and loan eligibility, they’ll get to know you and answer any questions you have about financing the right home for your needs.