LUDLOW, Vt. – Before considering a home loan application, it’s important to maintain a good FICO credit score, which plays a significant role in the mortgage process. Applicants will want to make sure their credit report is as accurate as possible, and that no one who could potentially harm their score has access to their credit. Dispute any inaccuracies with the national credit report providers, such as accounts that you didn’t open, or addresses that aren’t yours, and take immediate steps to investigate what could be identity fraud. There are three major credit bureaus: Experian, TransUnion, and Equifax.
FICO scores range from 300-850, and a good credit score will fall between 670-739. A very good score is between 740-799. Scores are calculated based on several financial factors that determine creditworthiness. Victoria Blodgett at Prime Lending reminds her clients they can get a free credit report once a year at www.annualcreditreport.com, and provides details on what lenders look for when calculating credit scores.
According to Prime Lending, 35% of a credit score is based on an individual’s payment history. Do you pay your bills on time, or have a history of collections? 30% is based on the outstanding balance carried on each account, and in total. 15% of a credit score is determined by length of credit history, 10% is calculated based on how often an individual applies for new credit, and another 10% reflects types of credit, secured credit cards, car loans, retail accounts, etc.
Making payments on time, avoiding high balances, and spending wisely will keep your credit score in the good to very good range.
Prime Lending has compiled a list for their clients, “Dos and Don’ts of the Mortgage Process,” to help them avoid mistakes that could jeopardize their loan application. For instance, don’t acquire any additional credit lines, or make any large purchases, like buying a car or new appliances, which will change your debt-to-income ratio. Don’t change jobs. A mortgage lender may verify employment on the day of closing as a quality control check. Additionally, Victoria asks clients to notify her of any changes to their salary or other compensation that differs from the information on the existing loan application. Do keep documentation, or a “paper trail,” on any large deposits into an account, or if funds are transferred from one account to another.
In general, it is important to do your homework of researching loans, lenders, and interest rates, and to be honest with yourself about what you can afford. Doing your due diligence at the outset will benefit you down the road, ensure that the loan process goes smoothly, and that the terms of the loan reflect a realistic financial outlook for the borrower.