“Hello, Michael Freeman here with Spire Financial, we’re going to talk a little bit about how does your credit score impact a home loan? Obviously, credit scores have a big impact on home loans, it’s a big part of what we’re looking at. We’re looking at your credit score, your income, and your assets.
Let’s talk a little bit about credit score. A lot of times credit score is a major thing it’ll have impact on is the rate that you’re given. Credit scores are an indicator of risk, and interest rates are an indicator of risk. So the lower the credit score, the risk you are, and usually the higher the interest rate. The better your credit score, the less risk you are, and hence the lower interest rate. Sometimes it will also impact the programs that are available to you.
Program Options
So let’s talk about different programs, you have your government loans, which are your FHA, and VA, and conventional and Jumbo. So for the government loans, FHA and VA, because those are government programs, they sometimes will allow for lower credit scores, sometimes down to 580. But there’ll be other things associated with those loans, such as funding fees, and monthly mortgage insurance. The better the credit score, though, you can get better interest rates on those. For conventional loans, they’re very sensitive to credit score, usually you have to start with at least a 640. And then for every 20 points, your credit goes up from there, you get a better interest rate, which you also think about is mortgage insurance for those.Mortgage Insurance
Mortgage insurance is also very sensitive to credit score. And if you’re putting down less than 20%, for every 20 points you have higher, the lower that monthly mortgage insurance is that you’re going to pay. So you kind of get hit twice there on conventional loans if you’re putting down less than 20%. For jumbo loans, also very sensitive credit score in terms of rates, but also for the programs that are available. The higher your credit score, the more banks we have that are willing to lend to you, more programs available and better interest rates.Establishing Credit
So since we established that credit is a big impact, let’s talk a little about how do you build your credit or better your credit? So for people that are looking to build their credit, and you’re not getting the score, because you haven’t established anything. Probably the easiest way to get started is to go get a secured credit card. There’s a few different websites you can go to out there. Search for a secured credit card, you just want to make sure that it’s a card that reports to all three bureaus. If you have questions about that, seek out your mortgage professional, we’d love to talk to you here at Spire Financial, and we can give you a referral to one of those that we know is a good card.Repairing Credit
If you’re looking to repair your credit, there’s some different things we can talk about here that will help you do that. First things first, I think you need to know the score, right? So everyone can go and obtain a free credit report once a year. You can go to annual credit report.com, put your information in, and pull a credit report. Sometimes you can also get them from, if you already do have a credit card established, they’ll let you get it. And there’s other websites out there like score sense and things like that, where you can get your credit report. Let’s get the score first, then we can get a plan. We like to do that with our clients, then you got to put a plan and look what’s impacting your score.Credit Reports
All credit reports will tell you what are the major things impacting. Is it collections? Is it late payments? Is it balances are too high. So let’s talk about this. If you have a collection, what you want to do is see if you can settle that collection. You do have to be careful though, because there are a timeline for how long collections can impact your credit. And if you’re trying to pay one off or settle one that is past that time, potentially, you could actually hurt your credit. So again, it’s always a good idea to talk to a mortgage professional about that. But if you do have collections that are recent, you want to get them taken care of. You can contact the creditor, and first things we like to do is see if you can obtain a pay for deletion there. Where you say, hey, look, I want to pay this off. But I’d like to get a letter saying it’s going to be removed from my credit. That’s gonna give you the best highest score impact to do so otherwise, you can pay it to zero, you want to make sure you don’t settle the account, because settle for less than the amount owed can have a bad impact on your credit. Okay, so that’s collections. Next thing you want to look at is, if you do already have credit established are you using too much of the credit limit? So for what we’re always looking at as a percentage of what’s used. If you want to keep your usage below 30% of the limit, if you can. The higher the percentage of usage, the lower the score. That even impacts sometimes people with good credit, because if you have a lot of money going through your credit card every month, and you’ve got a balance of $10,000. And at the end of the month, it’s $9,000, you pay it off, if we pull that report, right when the balance is the highest, it could have a negative impact on your credit. So keeping those balance limits down can help your credit score. Also, you want to make sure the obvious, pay all your bills on time. Never let anything go more than 30 days late if at all possible because that’s where it really starts to impact your credit. Keep your inquiries down. You don’t want to be going in applying for a bunch of department store cards and credit cards and things like that all at the same time. Or even when you’re shopping for a car and going to multiple dealerships. If a bunch of places have pulled it, those inquiries can lower your score. If you’re looking to talk to a credit repair company, you have to be careful there. They’re not all legitimate. A lot of times they’ll do quick fixes like just disputing everything and let’s talk about disputes. If you ever have inaccuracies that you know are inaccurate, you always want to dispute those and you can go on to each one of the three bureaus to do so. But you only want to do it if it’s legitimate. Some of these credit repair companies will say, let’s just dispute everything. And then they show your new credit report where your score went up. But that’s just because that information has been removed, and eventually it’s going to get added back on. When people come and apply for a loan with us and they have all the disputes, we actually have to remove them. So only dispute legitimate inaccuracies. If you’re looking for a credit repair company, we can always refer professionals that we know do a good job. But most of the time as a lending professional, we have the ability to pull your report and we have a software system that we can put everything through that tells us: let’s pay down this balance, let’s remove this collection, let’s add a credit card whatever that may be, and we can build a plan for you here at Spire Financial. So in my opinion, that’s always the best way to get started and either build your credit, or start to repair your credit. But if you have any questions, we’d love to hear from you. -Michael Freeman at spirefinancial.com. Thank you!”Latest Articles
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