How to Fix your Credit
Score and Qualify for a Home Loan
August 27th 2005
One might be wondering
why some lenders turn down a mortgage application while some others
might consider it fit for approval. The answer may well lie in the
credit report and the credit score to be precise which plays a crucial
role in loan sanctioning.
Credit history is an
important factor affecting loan granting decisions by the lender or
mortgagee. As part of the pre-approval process a detailed investigation
is carried out into your financial history whereby the lender assesses
your finances, your credit history and your investments. Your debt
ratios are compared with the lenderís standard while deciding on the
loan approval. Your level of debt or credit history is taken as a
parameter for judging your ability to make the monthly repayments.
The credit history as
represented by your credit report plays a very crucial role since some
lending institutions may even turn you down because of incompatibility
with their lending standards. Too much debt and poor credit rating is a
common reason cited for turning down a mortgage application.
At times your
application may not be rejected altogether but you may have to settle
for a loan amount lower than what you desired or expected. The other
terms and conditions of the loan might also not have proved worthwhile
for you. All these could have been avoided had you been a little more
careful and vigilant while placing your documents about your personal
finances as reflected by records of your earnings, monthly expenses and
debts. Among these documents the credit report is of prime importance
which reveals your credit score.
While considering your
application the lender will also get to analyze your credit report. This
provides all details about your financial history, payment records,
total debts and bankruptcies (if any). This information is used to work
out your credit score or FICO score (a rating of Fair Isaac and
Company). This is a composite number-a numerical rating of your credit
worthiness. These scores may range from 300-900. However, most peopleís
score fall between 600 and 700. Higher credit scores make you more
appealing to the lender. Thus, you will be more likely to be offered
better rates and loan terms.
A number of factors can
affect the credit score. They can be broadly classified as:
a) The length of time
you have had credit, outstanding credit, methods to repay this and how
close you are to your credit limits.
b) Problems with credit
which you may be having like late payments and bankruptcies. The number
and frequencies of your delinquencies is to be considered.
It may be noted that
almost 80% of credit reports contain errors. Getting for yourself a copy
of the report beforehand will enable you to take steps for improving
your score.You will be availed of the opportunity to review the report
and rectify the score to quite an extent.
Some steps which can be
taken in this regard are:
a) Finding out credit
cards which are not needed anymore and closing the corresponding credit
b) Settling outstanding
accounts, if any.
c) Paying out your
bills, debt payments on time and in full and reduce your outstanding
d) Verifying all listed
account numbers and getting assured that they are yours.
It may be noted that
minor credit problems or problems cropping up due to illnesses or
temporary loss of income due to some unpredictable occurrence will
restrict your chances of getting the aspired loan only from some
high-cost lenders. Other lenders will hopefully be considerate enough to
overlook such minor problems.
In spite of the best
efforts there may still be certain negative indications in the report
which could not be done away with. In such case you need to explain the
situation to the lender. If at all it cannot be explained then, perhaps,
you have to make greater down payments.
Getting to know how
credit record affects loan prospects, proceed towards making
improvements in your credit report. Your loan prospects will improve, no
doubt. It will take you a long way towards securing your desired
|Lance is an accomplished writer with specific
expertise in the Mortgage and Real Estate field and has been
involved for quite some years with
MortgageFit LLC as a
Books on Buying a Home
Keywords and misspellings: mortgage morgage loan