How is a credit score used when getting a mortgage?

i know this sounds dumb, but exactly what do they look at, why is it so important? can you ever substitute like more down payment for bad credit?

How is a credit score used when getting a mortgage?

When you apply for a mortgage, your lender will request a tri-merge (all 3 bureaus) credit report from a credit reporting company. This company pulls together a credit report electronically.

Along with the information, the credit reporting company receives a numerical score. The score represents a composite of your credit history, employment, ability to save, and so on. The most well known of these scores is known as the FICO score, which was a model developed by the Fair-Isaacs Company. Scores can change literally daily, depending on the information received at the repositories.

The Fair-Isaacs Company and the other major credit repositories do not divulge how the scoring model works. Congress is pressuring the credit repositories to be more accountable for the accuracy of the information they report AND to divulge what goes into the scoring models, to help people better understand how to improve their scores.

Why is this important?

The lending industry is %26quot;risk-based%26quot; pricing. This means that the higher one%26#039;s credit scores, the less paper they will have to provide to prove that they are creditworthy AND the interest rate and/or fees a borrower pays will be based on the level of their scores.

This system, while perhaps unfair to some, will be fantastic for those who maintain excellent credit. It%26#039;s one way that good credit risks can be rewarded.

Important Hints:

Pay all your payments on time.

Don閳ユ獩 apply for any new credit unnecessarily. Every time you sign and return a new credit card offering, or open an account at a store, an inquiry will be generated and that can reduce your score.

If you must maintain credit card balances, try to keep them at a level that is 40% - 50% of the maximum credit limit. In other words, if the credit limit is $5,000, try to keep your running balance below $2,000.

Consolidating all your credit cards can hurt your score as well.

If you get into a dispute and it isn%26#039;t a huge amount, pay it and move on. Having one or more collections, even if they are small amounts, can really hurt your score.

There are many more tidbits, but I will save them for the next sections, when I will also discuss how to correct erroneous credit information.

If you have recently obtained your credit report and you are not happy with what was reported, you can take steps to correct the erroneous information on it. There are also proactive things you can do to improve your scores, if you are anticipating applying for a mortgage anytime soon.

And, yes, if you have a lot of money down, say 20%-30%, you can have horrible credit and still get a decent rate.

How is a credit score used when getting a mortgage?

the lower your score,the higher your rate. the higher your score the lower your rate

How is a credit score used when getting a mortgage?

Small steps like paying your bills on time and using only part of the credit available to you. Also use your credit cards for making small payments regularly, so that it is reflected in your credit record. More tips available at http://www.acreditlibrary.com/buildcredi...

How is a credit score used when getting a mortgage?

Credit scores are simply a numerical estimate of your likelihood of default. The lower the score, the more likely you will end up more than 90 days late within the next year or two. The scores are based on the past payment performance history of millions of credit files, which are used to detect patterns of behavior that either increase or decrease risk.

One easy example: Someone who goes out and takes a few new credit cards, and maxes them all out quickly, is more likely to default than someone who doesn%26#039;t. Now, if you pay off those balances in a reasonable time and never get late on your payments, your scores will improve again. If they stay maxed out for a long time, they won%26#039;t improve much at all.

And yes, a large downpayment substantially reduces the risks for the lender, for a couple main reasons:

1. If you put 20% down, for example, even if you default on your mortgage, the bank is unlikely to actually lose money, since there is ample equity left over for the bank to accrue interest and legal fees, and still hopefully sell the home after foreclosure for what they are owed.

2. Someone who put 20% down of their hard-earned money is far less likely to walk away from a property than someone who invested nothing. If you finance 100%, you%26#039;re not out tens of thousands of dollars of your own money if you can%26#039;t make your payments. And of course, someone who has had the ability to save that much money is also presumably pretty good at managing their money in the first place, and is therefore also less likely, behaviorally speaking, to allow their finances to get too bad. Things like divorce and injury happen to anyone, of course, but people with savings can usually get through those tough times better than someone who has no ability or discipline to save money.

Hope that helps.

How is a credit score used when getting a mortgage?

Eveything I would say has already been said. Every answer is absolutely true.