Need a mortgage? Know your credit score!
OnlineGuideTo.com — Today, more than ever, your 3-digit credit score is of prime importance for anything from your ability to obtain credit cards to how much your mortgage will cost you.
Most credit decisions, be they for rental contracts, mortgages — or, surprising to many — even job applications, are made based on your credit score. Creditors use your credit score to assess your credit risk—that is, whether or not you are likely to repay your loans.
With the resurgence of tighter underwriting standards, some mortgage-market observers have been predicting that lenders would once again rely more on a borrower’s overall worthiness and less on credit scores.
Lenders are giving more credence to each of the so-called Five Cs — character, capacity, collateral, capital and credit. But your credit score, which is a numerical snapshot of your credit history at a single point in time, is still paramount, said David Chung, managing director of Credit- Xpert, a Towson, Md., firm that sells credit-management tools to lenders.
Just a few months ago, a credit score of 620 was good enough to obtain the best mortgage rates and terms available. Many lenders now require a minimum score of 680 to qualify for a prime loan. And some won’t even make a loan to anyone whose score is below the new benchmark. “Everyone’s gotten extremely conservative,” Chung said.On top of that, in cases in which borrowers don’t make at least a 20% down payment, investors who buy loans from local lenders and insurers that protect the loans’ owners against borrower default are charging extra fees.
Since a good credit score is vital, borrowers need to make sure that the information contained in the files maintained by the three credit bureaus is accurate and up to date.
Check your histories with all three repositories — Experian, TransUnion and Equifax — because each receives information from different creditors.
- Source: Excerpted from the Los Angeles Times, May 4, 2008
Mortgage rates highest in 2 months
Interest rates for long-term mortgages rose this week to their highest levels since March, pushed up by the threat of inflation.
The national average interest rate for 30-year, fixed-rate mortgages increased to 6.08 percent for the week ending Thursday, up from 5.98 percent the week before, according to mortgage financing company Freddie Mac.
The week’s average rate is the highest since March 13, when it was 6.13 percent.
[...]Doug Jones, a broker with Mortgage Magic in San Jose, said rising rates are hardly the worst problem for borrowers trying to get loans now. Bankers’ ever-shifting guidelines and wariness of lending are a bigger problem, he said.
“Here’s what we’re seeing: People want loans; banks don’t want to lend loans,” Jones said. “Banks have made the complete swing from approving everything to approving nothing.” He admitted to exaggerating a bit, but said it’s common now for lenders to be rigid in their criteria, and to change the criteria often. For example, he said, a bank that says a borrower needs a credit score of 700 to qualify for a loan may refuse to consider a borrower whose score is two points lower at 698.
- Source: Excerpted from the Mercury News, May 30, 2008
Money Lending Rules Have Changed
Many lenders are demanding higher scores because they’ve been burned by rising delinquency rates. In the fourth quarter, consumer credit delinquencies hit their highest level since 1992, according to the American Bankers Association.
“The rules have definitely changed,” says John Ulzheimer, president of consumer education for Credit.com. “Back when they were giving money away to anyone who could fog a mirror, you didn’t have to have those stratospherically high scores unless you were going after something really high-end.”
At the same time, new scoring systems may complicate consumers’ efforts to monitor and improve their scores. Fair Isaac Corp., the developer of the FICO score, is introducing a scoring model, dubbed FICO 08, that the company says will do a better job predicting the likelihood of a borrower defaulting on a loan.
These days, a clean credit record isn’t just important if you’re shopping for a loan: It could even affect your career. Potential employers, landlords and insurers routinely examine credit reports.
The basic steps to build and maintain a good credit score haven’t changed: Pay your bills on time and don’t max out your available credit. Payment history accounts for about 35 percent of the FICO score, while the amounts you owe — including the number of accounts with balances and the fraction of available credit used on credit cards — accounts for another 30 percent. Other factors include the length of credit history and the types of credit used.
Another key step: Get a copy of your credit report.
- Source: Excerpted from The Wall Street Journal, via the Courier Post, May 23, 2008
See Also
• Improve Your Credit Score
