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The Application Preparation Blog Series: Credit

When you do apply for your home mortgage loan, the first major piece to “the mortgage puzzle” your loan officer is interested in is your credit history. In order to analyze the relationship you have with your money, they will obtain a credit report that includes information from all three credit repositories, Equifax®, TransUnion®, and Experian®.  This information will help determine what the best course of action will be moving forward with your loan application. 

Credit scoring is an easy way to measure the amount of credit you have taken on and have paid on time, this is a number your loan officer will want to see. Generally, credit scores will be in the range of 400-850. The higher the better. A common concern for first-time home buyers is how their credit score will play a factor into the mortgage process if their score is not quite what they would like it to be. Let us explain a bit more detail what determines a credit score.

Your overall credit history is analyzed to compute your credit score. The type of loans that factor into your credit score include student loans, credit cards, car loans, along with past and present mortgages. The credit report also provides information on how long you had debt, the amount borrowed, the monthly payment, and your payment history. You should be aware that any negative information on a credit report, like bankruptcies, foreclosures, or judgements, are also factored into the credit score. Therefore it is always a good idea to monitor your credit so you can stay aware of your financial standings, remind yourself to be smart with your money, and be prepared when the time comes to apply for a loan.  You can do so by going to www.annualcreditreport.com to obtain your free copy.

What many first-time buyers do not know is that there are a few different types of credit scoring models. Most people get their credit score by looking at their credit card information or credit score monitoring companies like Credit Karma®, but this only provides what is called the consumer credit report model, which rarely tells the whole story. Banks and mortgage companies use a different model called a risk-based credit score which gives more insight into the information they need.

Buyers sometimes get hesitant about their loan officer pulling the risk-based credit score because it will be lower than the consumer report they are used to, but that is simply because it provides more in-depth information; it will usually be lower for everyone. All-in-all, the difference between your loan officer pulling your credit report versus you obtaining a report typically will not affect which loan option you proceed with in the end.

Dealing with credit history can sometimes cause first-time home buyers some unease. Rest assured, when working with an RMS loan officer you can be confident in trusting they always want the best for their clients and their expertise will guide you to a plan you can feel comfortable with. 

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