Credit Guide

Whether You Are Purchasing a Home or Refinancing, a Good Credit History is Essential!

Mortgage lenders must determine whether you are not only able but also willing to repay the

mortgage debt. To judge your ability to repay the loan, they may look at many factors including:
• Employment history
• Income and outstanding debt
• Savings patterns and amount of savings
• The type and amount of loan requested
• The amount of downpayment or the existing equity in the property

To determine your willingness to pay the debt, however, lenders typically look at your credit report

and credit score. Your credit score predicts, based in part on your past behavior, how likely you are

to repay the mortgage debt. Lenders will use your credit score to help them determine:
• What loan type you are eligible for
• Whether to approve your loan
• What your interest rate will be

Who Determines Your Credit Score? The most common credit score used by lenders is

the FICO® score, which ranges from 300–850. Higher scores indicate a low risk that a borrower will

not pay the loan back; lower scores indicate a higher risk. The FICO score is generated by a

mathematical formula (called a scoring model) developed by Fair, Isaac Corp. (FICO). The scores are

not based on human judgment. The scoring model applies the same standards to everyone. You

have three FICO scores, one from each of the three credit reporting agencies: Experian

(http://www.experian.com), TransUnion (http://www.transunion.com) and Equifax

(http://www.equifax.com). Each of these private national agencies collects information about each

consumer and keeps it electronically in an individual consumer credit report. Credit records include

the following information collected from companies that grant credit and from public records:
    • Identifying information (name, address, employer, Social Security number and so on)
    • Debt and payment history on credit cards, student loans, consumer loans, car loans and so on
    • Any previous collections
   • Any tax liens, judgments and bankruptcies
   • Inquiries for new credit

Factors Considered in a Credit Score:
    • How you have handled credit in the past
    • The amount of credit you have used compared to your credit limit
    • The length of your credit history
    • The number and types of credit accounts you have
    • How active you are in applying for new credit
    • Public records pertaining to credit

Important Facts about Credit Scores:

No single factor, such as a previous collection

or a bankruptcy, can cause a “risky” score.

Credit scores improve as credit behavior

improves. Recent credit behavior weighs more

heavily than your credit behavior in the past. As

time passes, the relative weight of a poor mark

on your credit record diminishes. However, there

are no quick fixes. A short-term improvement

will not cause a risky score to improve

dramatically.

• When information on your credit report

changes, your credit score may change as

well.

• Your FICO score may be different at each of

the main credit reporting agencies (because

the information those agencies have on you

differs).

• For your FICO scores to be calculated, each

of your three credit reports must contain at

least one account that has been open for a

minimum of six months. In addition, each

report must contain at least one account that

has been updated in the past six months.

This ensures that enough information — and

enough recent information — is in your report

to generate a FICO score.

Note: There are other credit scoring models in

addition to FICO, and they do not necessarily

use the same scoring scale.

Review and protect your credit:

Before applying for new credit, be sure your

credit records are accurate. Check your report

at all three companies — Equifax, Experian and

TransUnion.

If you’ve been denied credit, you can get a free credit report (regardless of whether you’ve already gotten your annual free one).

By law, you are entitled to receive one free credit report from each of the three national credit reporting agencies per year. You can order them or view them immediately online at http://www.annualcreditreport.com — after you provide information to identify yourself.
Obtain a copy for a minimal fee if you’ve already received your free one for that year.

If any of your credit reports contains

inaccuracies, contact the credit agency that

compiled the report. All three agencies detail

their dispute processes on their Web sites. The

Fair Credit Reporting Act (FCRA) requires the

agency to investigate your disputed items within

30 days. The credit reporting agency must

provide you with written notice of the results of

the investigation within five days of its

completion, including a copy of your credit

report if it has changed based upon the dispute.

Eva Kokosinska

Providing exceptional mortgage services.