FICO is a credit-scoring system established by the Fair Isaac Corp.. FICO scores are calculated to find out the probability of credit users paying their bills. FICO scores have become the benchmark of the lending industry for choices. Howevernot all lenders use FICO scores to determine creditworthiness. Some lenders use scores from other agencies such as Scorex. Many lenders look to the 3 leading credit-reporting agencies — Equifax, Experian and TransUnion — in making their lending decisions.
Credit Strategies
Credit scores range from about 300 to 850. According to Freddie Mac and Fannie Mae, which buy mortgages from banks and resell them to investors, a FICO score above 620 is considered good. However, states Fair Isaac,”A 620 score does not mean that you’re likely to qualify for the best speed. It means you’re likely to qualify for a standardized rate, or a prime speed. ‘Prime’ is a broad category, so creditors will have different loan products that classify as’prime’ rates.'” The interest rate lenders charge their most creditworthy customers is described as the prime rate. The prime rate is based on the fed funds target rate determined by the Federal Reserve.
Credit Reports
Most mortgage applicants possess matters to clear up fiscally before being able to achieve a great credit score. Consumers should frequently review their credit reports to make certain that there are not any mistakes on them. Any adverse-credit indications, balances showing payments over 30 days , collections, judgments, bankruptcies or foreclosures will reduce a credit rating. It is best to pay off old balances, judgments and collections prior to applying for a mortgage. And once these accounts are paid off, wait until they have been reported on your credit reports because”satisfied” or”paid”
Honest FICO
A credit score below 620 is considered subprime. The subprime lending category is for borrowers that the lender decides to be insecure loan candidates. Scores that fall short of 620 can bring about lender investigation. Applicants will be required to provide additional documentation to prove their creditworthiness. Subprime lenders request W-2s and bank statements from candidates. Borrowers with credit scores under 620 will generally pay higher rates of interest.
Good Score
According to a 2005 poll by GMAC Mortgage, 62 percent of customers were unaware that a score of 620 or better them in line for the very best mortgage rate, CNN states. Knowing the range for prime lending can help a consumer aim for a particular credit rating. The Treasury Department says,”Lenders disagree with respect to mortgage underwriting procedures, but the typical’A’ credit or prime debtor — that is, a borrower whose loan could be purchased by Fannie Mae or Freddie Mac under their guidelines — includes a FICO score that exceeds 650, does not have any overdue mortgage payments and no more than one 30-day overdue payment on credit.”
Excellent Credit
The nonprofit Myvesta Foundation provides free consumer debt assistance and assistance in the United States, United Kingdom and Ireland. At a 2001 Bloomberg BusinessWeek story on credit, Myvesta said a score of 650 or higher was considered outstanding by most mortgage lenders. Borrowers with excellent credit qualify for the cheapest prices, loan terms and funding incentives. No-documentation loans (loans primarily based on a credit score) can be offered to borrowers with credit scores of 700 or greater.
Mortgage Loan Qualifications
A credit rating is part of the home mortgage qualification procedure. Other factors such as job history, income and debt-to-income ratio affect lending decisions. In the end, it is up to a creditor to determine whether to extend credit to a mortgage loan applicant.