Tuesday, November 8, 2011

What you need to know about your credit report

   In order to get your mortgage approved, there are 3 areas in which you have to pass muster-income, assets and credit.  Just a few years ago, that statement wasn't true.  If you had good income, but poor assets and credit, you could still get a loan.  If you had good assets and poor income and credit, you could still get a loan.  Get the picture?  Well, those days are gone and have been for quite a while.  Now, you must be able to pass the litmus test on all 3 in order to get a loan. 

   The one that I want to focus on today is credit which in my opinion has taken the hardest hit.  The Fannie/Freddie government takeover has caused huge changes to how your credit score impacts your mortgage loan.  Here is a perfect example:

   Prior to 2007- If you had a 680 credit score or better, you didn't even have to show documentation of income or assets in order to get the best available rate out there up to 80% financing.  It was called the Fannie Mae SISA program.

   Today-  If your credit score is 680 and you want to do 80% financing, your rate will be .375% to .5% higher than the market.

            - If your credit score is 739 and you finance 80%, your rate is .125% higher than the market.

            -If your credit score is 719 and you finance 70% or more, your rate is .125% higher than the market.

            -If your credit score is 659 and you finance 60% or more, your rate is .25% to .375% higher than    the market.

  The contrast is so dramatic is incredible.  A 739 credit score is very, very good yet you are still penalized.  By the way, for jumbo loans not owned by Fannie Mae, the credit score requirements have not changed much at all.  This is why (if you dont have a jumbo loan) you need to keep your credit as perfect as possible and here are some tips:

1.  Do not have too many lines of credit.  4-6 lines is optimal.

2.  Keep the balances below 33% or the credit limit.  This will insure optimal scores.

3.  Never, never, never be 30 days late on a payment.  Any payments that are late up to 30 days are not going on your credit report.  It's only if you are 30 days late and that kills your scores.

4.  If you have a collection and pay it, your scores will go down before going up.  Most people do not know this.  The only way to get your scores up after paying a collection is to get the collection company or company to remove the collection from your report rather than have it on the report as paid.  Most times, you will not get them to do it.

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