Your credit score plays a very important part in the home loan process. Typically they range between 340-850 and are calculated by three reporting agencies, Transunion, Equifax, & Expirian. The formulas they use may differ so your scores may vary. Lenders lend money based on your level of risk, the better your score (700 or better) the more favorable your rate and options.
They are essentially investing in your ability to pay back a loan. The term "mortgage" refers to collateral, you are using as collateral to pay back a loan. Your FICO score is calculated using the following formula; 35% is payment history, 30% amounts owed, 15% length of credit history, 10% new credit, and 10% types of credit used.
Some ways you can make sure you are in a good position are to:
1) Pay your bills on time - one late payment can really have a negative impact on your score.
2) Check your credit report to make sure it accurately reflects your history. If there are any errors or discrepencies have them cleared up immediately.
3) Keep your existing debt levels at less then 30% of the total credit available to you. High balances have a negative effect as well. Remember, the reporting bureau's check on a monthly basis in order to formulate your score. Think consistency!
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4) If you plan to apply with a few different mortgage servicers have them all pull your credit within the same two week period, credit scoring models will most likely recognize that you are shopping for a loan and it won't affect you your score much. Try to avoid having numerous different types of inquiries. They say that you should have no more then 3 in an 18 month period, outside mortgage pulls. If you haven't found a home within the time that the mortgage pre approval letter expires they can usually do a soft pull that doesn't even show up to make sure nothing has changed.
5) If you need to repair your credit seek guidance. There is a strategy behind credit repair and it takes time, be patient and consistent.
Christopher Pagli - www.WestchesterCountyRealEstateMarket.com
Accredited Buyer Representative
Real Estate Associate Broker
William Raveis Legends Realty group
914.406.9023
