Credit Score Info for Home Buyers

What is a credit report?

A credit report is an account of an individual’s credit history, including items such as mortgage accounts, credit cards, bank loans, late payments, tax liens, and bankruptcies. Included are the balances for each item and the amount of monthly payments. The credit report includes information on whether payments have been made on time, and is thus a record of how a person manages and uses money and credit.

Why is this important?

Credit history is important because it discloses some things that may reflect favorably or unfavorably against the applicant. It tells lenders whether they should approve a loan and what the rules should be, how long it will be, what the fee should be, or the rate the interest grows. A person with a good credit report is more likely to get a better rate of interest after applying for a loan than someone with a bad credit report. A bad credit report may result in the loan application being denied altogether.

What is a credit score?

A credit score is a method of estimating your credit worthiness – a.k.a.,  your ability to repay a loan. Before applying for a loan for a home on the Main Line, you can check your credit score through any of the reputable agencies mentioned below. Some of the information used to make this score is your amount of debt, type of credit used, bankruptcies or late payments, and collection accounts. FICO is the most widely used form of credit score and is used and developed by the Fair Isaac Corporation. It should be noted that income does not affect your credit score, but of course having good credit alone is not enough to get a loan, you also need to demonstrate sufficient income to repay the debt.

What is a good credit score?

The FICO credit scores range from 300 to 850. A couple years ago, lenders were much more lax regarding what kind of credit score you needed to get a favorable home or auto loan. With the market and real estate difficulties, banks have been tightening their lending standards. So, it is hard to say exactly what score will get you a loan nowadays, but the general rule of thumb is that anything over 700 is considered good and will qualify you for favorable interest rates. Once you get below 620 you will get much more unfavorable rates or may not even be able to qualify for credit at all. If you’re interested in buying real estate in Philly and have average or below-average credit, it’s worth researching ways to boost your credit score.

What are the 3 credit agencies?

three major credit agencies or “bureaus” are Equifax, Experian, and TransUnion. Each agency will give you a score, and your score is usually determined by averaging the three or by taking the middle score. Most mortgage lenders use your middle score as the basis for your mortgage qualification. By law, you are entitled to receive a free report from each agency every 12 months, but you must request the report yourself.

Errors on your credit report?

The quickest way to fix errors is to subscribe to each of the credit agencies’ credit monitoring service (typically for a small monthly fee). Once you subscribe, disputing an error is as quick as clicking the ‘dispute’ link. That will usually fix the problem fairly quickly. You can also dispute by sending a letter in writing, but that process can be much slower. After your report is cleaned up, you can always cancel your subscriptions.

How do I get my free credit report?

To claim your free credit report before applying for a loan or looking for real estate on the Main Line, you can get a free credit report at AnnualCreditReport.com.  You are entitled to a free credit report every 12 months from each agency listed above. It is also important that you monitor your report as mistakes can be made. There is nothing worse than needing a loan and getting denied for a mistake on your report.

The 3 credit agencies created a joint venture company named Central Source LLC. Central Source then set up a mailing address, telephone number and finally a website. That website – AnnualCreditReport.com – is where you can obtain your free report and other information for a fee (such as your actual credit score). There are many websites that promise you a credit score, but AnnualCreditrReport.com is the only official one jointly owned and operated by all 3 credit agencies.