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This is a brief summary of credit written for Realtors and their clients by Teresa Schmitt. Teresa is a local loan originator in Huntsville. She is not an attorney and the following post is not to be taken as legal advice. This summary is only to be used as a quick reference and easy guide for those who are unfamiliar with these concepts and are seeking basic information.
Why is having and maintaining a good credit history important?
The Fair Credit Reporting Act and the Equal Credit Opportunity Act help ensure that lenders rely on "likelihood of repayment" as their chief criterion when granting credit. Scoring models do not consider race, gender, nationality, religion, marital status, or other prohibited factors. For more information about credit scores, visit www.myFICO.com.
Before one can buy a house, mortgage lenders want to know that the customer won’t default on their mortgage. Low credit scores indicate a higher risk to the mortgage lender, hence result in higher interest rates.
If you're approved for a mortgage, your credit affects your interest rate. Interest rates directly impact your monthly mortgage payment by either increasing or decreasing the amount you are charged. Low credit scores could cause a loan application to be declined, or to be approved, but at a higher rate.
While you may not currently be in the market for a house, your credit is still important. All U.S. consumers are eligible to obtain a free copy of their credit report through the only authorized site, www.AnnualCreditReport.com. You should obtain a copy of your credit reports annually from the three major credit bureaus to make sure there are no errors. The majority of credit bureau information is accurate, but you have the right to examine your file and to explain or correct the information it contains. Errors could affect both your credit rating and your credit score. Annual review of your credit record is also a good way to monitor identity theft.
If you are in the market for a house, credit scores are paramount in determining the interest rate and loan program you will qualify for. A stable job history and/or education also play a key role in building a strong application. See the chart below for the 5 factors that determine your score and ways to build and maintain acceptable credit.
Once your credit is ready, it's time to choose a reputable and approachable lender to help with your loan application. Applying is easy -- make a quick call to your favorite lender or use an online loan application for prospective customers. After pulling credit and assessing their financial situation, the lender should discuss these findings with the customer to determine their buying power and the right loan program for them. Some require as little as a 3% down payment, and there are plenty of programs available that don't require any down payment at all.
Purchasing a home is likely the single most important and, in most cases, the largest purchase decision one will make. Because of this it should be given considerable thought and preparation. Make sure your credit score is at its best before you apply to give yourself a better interest rate and lower monthly payment.
Wishing you success!
Teresa Schmitt
NMLS# 470438
Sr. Loan Originator, FirstBank Mortgage
256-651-6574
tschmitt@firstbankonline.com
