Credit Challenges in Home Buying

Interest rates this year have reached all-time lows, however many prospective homebuyers are facing the credit challenges involved in financing. A credit score is a number that lenders use to estimate risk. Fortunately, interest rates will probably remain low for at least another year. If buyers take the necessary steps to establish credit and rebuild scores, they might be able to take advantage of this buyer's market.

If your lender is unable to qualify your prospective buyer, see if they have an incubation system. Your lender should be able to lay out some necessary steps for establishing credit and give those leads a second shot.

To first understand how to re-build credit, you must understand how it is calculated.

30% Debit to income ratios. Lending institutions don't want borrowers to be over extended, thus increasing the borrower's risk. If possible, pay down your debt so that no more than 30% of your credit limit is used. Make sure your credit cards are not maxed out because it will lower your credit rating. Also, open lines of credit or credit cards can also negatively impact your credit score. It's a good idea to monitor your credit report and close any unnecessary credit cards or lines of credit.

15% is based on age. The history of your credit line (older is better). This shows the credit bureaus that you have a responsible history. Make sure you use these credit cards on occasion and keep them active.

10% is the type of credit. The credit bureaus prefer to see several different types of loans. Some loans include unsecured loans, revolving debt, mortgage debt, installment debt, and secured loans. Some of คอนโดมือสอง กรุงเทพ my clients have a history of paying their bills with cash. Although this is fiscally responsible, it doesn't support your credit rating.

10% Credit Inquiries. Each time you have your credit pulled; it can negatively affect your credit rating. I have heard some people refer to these as soft pulls. These inquiries can last 2 years. If possible, do your best to shop around for rates without pulling credit at each competitor. They should be able to give you a close ballpark before pulling your credit.

35% Most impactful is your payment history. Lending institutions want to make sure you have a consistent on time payment history and that you have a past of satisfying accounts as agreed. They look at delinquent accounts in different ways.

How many past due items are on your credit report? How many months have you been past due? How long has it been since you had a past due payment?

If possible, try to avoid any late payments. Your missed payments can remain on your credit report for 7-10 years.

Credit scores typically range from 340-850. The higher your score, the lower your risk. Many people say "as your score increases, your interest rate decreases". With a credit score of over 700, you will most likely be offered better financing options with better interest rates.

Lending institutions will typically pull credit from all three major reporting agencies: Transunion, Equifax, and Experian. In most cases, they will use the median score to execute your loan application.