It is essential to divulge information about past credit problems frankly during your interview. You should already have discussed judgments or bankruptcies with the real estate agent during your first meeting. Such problems won’t necessarily prevent you from obtaining a mortgage, but if the lender’s checking turns up any lies, you’re in trouble. To find out about your credit history, simply go to your local credit bureau and draw an inexpensive report on yourself or take advantage of online free credit reports offered through some firms on the World Wide Web. Do it early on. If any inaccuracies show up, the bureau will help you clear them up. Sometimes it takes up to 120 days to see the results of your credit clean-up in the credit report, so as a back up keep copies of all letters from creditors who are helping you. Credit scoring is a relatively recent tool used by lenders. The first such scoring system, FICO (Fair Isaac & Company) and systems like it are used by Experian, Equifax, and Trans Union, the three major credit bureaus. On a scale of 365 to 840, a FICO score of, for instance, 585, carries with it more than 2 to 1 odds that an account would go delinquent. One reading 700 would tell the lender that the chances were only 1 in 288 that the something would go wrong. Some of the things that affect your FICO score are: Delinquencies on credit accounts
Too many accounts opened within the last 12 months
Short credit history
Balances on revolving credit near the maximum limits
Public records, such as tax liens, judgments, or bankruptcies Lower scores may qualify you for one sort of loan and not another. VA and FHA guidelines are generally more lenient, though banks making their own portfolio loans can be flexible within certain limits. FICO scores are now considered guidelines, and even though creditors and lenders that view your credit report do not get to see the actual scorecard, they will use the final scores. How lenders view FICO scores vary a little from lender to lender. Some scores will require a very basic review of the entire loan package; some will require more underwriting. The lender may ask you for written explanations of slow payment history or any negative report. You will have to pay off any open judgments, even if they flow from an “I won’t pay as a matter of principle” dispute. Bankruptcy guidelines vary, depending on the type of bankruptcy and type of loan. In general, two to four years must have elapsed since the discharge of your bankruptcy, though each case is considered separately. Foreclosures must usually be at least three years old. If your problem was due to something beyond your control, and your previous credit history was excellent, exceptions can be made. Most important is your record of payments on any previous mortgage loan. You’ll be asked to sign a number of papers when you apply for the loan, many of them authorizing the release of information from your employer, savings institution, or credit bureau. |
