It is certainly like a Judgment Day when one is sitting in front of a loan officer and applying for a mortgage. Are you creditworthy? This is the only question running in the officer’s mind before he sanctions the loan. For this, all the mortgage lenders will review all-important records of the applicant, namely credit scores and credit reports.
Each of the three major credit bureaus, Experian, Equifax, and the TransUnion, ensures that they collect data from all lenders about an individual history of borrowing money and paying back the same. All this data is compiled into credit report, which any lender can access whenever a person applies for a loan. It is to be noted that The Fair Isaac Corp. is the leading producer of credit scores. They take into consideration these credit reports, apply their own formula and generates a score that ranges from 300 to 850.
Borrowers with high FICO scores between 760 and 850 will get a loan for lower interest rates and certainly more loan choices. Scores which are less than 620 places a borrower in the “subprime” category, and they end up paying significantly higher interest rates and are liable to fewer varieties of loans. A FICO score that ranges 500-520 is considered as a minimum that will qualify for a mortgage.
Factors beyond credit scores:
Though scores are important, but they are not the only ones that lenders consider when approving a mortgage. Low scores are certainly not insurmountable obstacles, what one needs to know is what the lender will not tell the borrowers. The fact remains that – “The FICO is one of the factors, not the only one.”
There are a number of other “offsetting factors” which can balance a low credit score, such as large cash reserve, a large down payment, or an overall low debt-to-income ratio. The crucial thing is that borrowers should not assume that their loans will not be approved because of a low credit score. The above-mentioned factors will also play a significant role when a loan gets sanctioned.
Scrutinize your credit reports:
Though other factors apart from credit scores are considered, yet one will have to make sure that his/her credit score is remarkable. In case, there are mistakes on your credit reports; they will show as low scores.
Hence, it is wise to get an updated copy of your credit reports at least six months before applying for a loan. If you spot problems, do rectify it as soon as possible so that the score does not get affected. In case, there are issues that cannot be solved by the individual himself, then it is wise to hire the services of a credit rectification company who can dispute the issue on your behalf. Browse the net for more information on the same and make sure you hire the services of the one who offers quality services at reasonable rates.