Credit Score effect on Refinancing
| House Refinance Center |
| Breakdown of the FICO Scores |
35% Payment History
30% Amounts Owed
15% Length of Credit History
10% New Credit
10% Types of Credit
| Refinancing a house mortgage is not a simple task anymore. The loan process takes longer and lenders are spending more time verifying documentation, especially FHA lenders. Being with the same lender for ten years or more is no guarantee that the borrower will get the loan approved. In the wake of the subprime meltdown and the housing crisis, borrowers can expect tighter underwriting standards, and request for more documents. Credit scores definitely matter. Borrowers with credit scores above 750 should have an easier time because their mortgages can be packaged and sold on the secondary market. A score below 700 is a problem, and the borrower can expect to pay higher fees and a higher rate. It is not unusual for the fees to be around 1 percent of the loan amount. Here are four basic areas to work on to improve your credit score. 1. Errors on your report. Get a copy of your report. Look for any errors. If you find any, contact the credit reporting agencies and ask them to make the necessary corrections. Errors are common and can take months to fix. 2. Debt-to-credit ratio. Try not to max-out your credit cards every month. If your limit is $5,000 and you consistently carry a balance of $4,500, that is not good. Your ratio is 90% and you become a high risk. Keep your balance around $1,000 or 20%. 3. Late payments. When a lender sees that you are late every month, that is a big problem. Accounts that are 30 days late, become 60 days late and eventually go to collections. If it means making a minimum payment to prevent an account from being "past due", do it. However, be aware that the next month you have to pay extra to make the account current. 4. Old accounts. Leave your accounts open. If they have a zero balance that is not a big issue. If you close the account and then try to re-open later, that could be a problem. Not all lenders use credit scores. These are portfolio lenders. They are usually Savings & Loan institutions. Borrowers would generally use portfolio lenders as lenders of "last resort". National Distribution of FICO Scores |
1% 5% 8% 12% 16% 19% 28% 11%
up to 499 500-549 550-599 600-649 650-699 700-749 750-799 800+
up to 499 500-549 550-599 600-649 650-699 700-749 750-799 800+
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| Changes To Free Credit Reports That Cost Money We have all seen the advertisements for "free credit reports". We order them and then find out that we have to pay for them. Nothing is free. The Federal Trade Commission is doing something about this. Under the new rules advertisements must have clear disclosures. If there is a fee, the advertisement must say there is a fee upfront. There will no longer be confusion with reports that are actually free. You can get free, no strings attached, no credit monitoring reports at AnnualCreditReport.com or call 877-322-8228. The amended rule is effective April 2, 2010. |
| Finding a Credit Worthy Buyer To Qualify For A Mortgage - Priceless Interest rates are at record lows. There are millions of houses to choose from. And house prices are dropping week after week. So, why can't you find a buyer for your house? The answer is simple. One-third of Americans can't qualify for a mortgage because their credit scores are too low. According to Zillow, people with credit scores under 620 who requested a quote on a 30 year fixed rate were unlikely to get a quote even with a downpayment of 15 to 20 percent. This information was from a study of over 2,500 loan quotes and purchase requests during the first half of September. The good news for those of you with credit scores 720 and higher is that you will get the red carpet treatment. You get a mortgage with great terms and with the lowest rate. Tighter credit was a response to the housing crisis. Lenders are sticking to the new underwriting guidelines and documenting all details of the loan application. Starting last summer, homebuyers looking to take advantage of the FHA's 3.5% downpayment mortgage, needed a credit score of 580 and better. Are lenders taking the 580 score seriously? HUD is telling lenders to follow the FHA guidelines or else. In July more than 1,000 lenders were sanctioned for running afoul of the guidelines. Some lenders were kicked out while some were fined. Remaining lenders are going the extra step to make sure that every FHA requirement has been met. If you are around 690 and would like to get to the coveted 720, there are a few steps you can take. >>Always pay on time. >>Avoid carrying large balances. >>Avoid too many inquiries on your report. >>Monitor your credit. Meanwhile, if you are trying to sell your house, you might have to consider making some concessions. |
| Lenders Need To Look Beyond Credit Scores How much emphasis do we put on a credit score? My friend JD's uncle had a FICO score of 810 about a year ago. Right now Uncle Joe is at 720 and sinking fast. All he did was apply for a loan modification. And he was 3 days late once. Uncle Joe hasn't changed much. He is still a reliable and honest individual, with good values, and outstanding character. He did run into some financial troubles. But I'm sure he will pull through. We are in a housing and economic crisis. Homeowners who faced foreclosure, or went through a short sale, came out with damaged credit. Some of these people were good law abiding citizens. Paid their taxes. Paid their mortgages. Put their kids through college. Will they ever get a "good" credit score again? The experts say it could take as long as 7 years to rebuild your credit. The lenders are waving the credit score flag in front of you and telling you that they want a score of 750. That's crazy. After all the rough times we have been through we need lenders to look at more than a score. We need lenders to examine our job history and our payment history. Many of us had late payments, missed payments, partial payments and settlements. What percentage of the population has a score 750 and above? Who decides what score is adequate? A score that is good to buy a car might not be good for a house. For a house we might need 780 plus. Credit experts say that you must use your credit cards to raise your score. In other words, be in debt, pay the interest to the banks so that when you want a loan they will lend you money at a ridiculously high rate. |