Credit 101 For Clients
Good credit is an important part of the equation for clients' success in getting a home loan. While it's true some goverment programs such as the increasinngly popular,FHA loan allow a lower credit score, it's a service benefit to understand how to get a credit report and what factors go into the credit score.
1. The score is different from the report. A credit score is a number that reflects the historical credit information on a credit report. The number indicates a person's likelihood of becoming delinquent on a loan or credit obligation in the future. The higher the score, the better the terms of the loan such as a lower interest rate.
2. Review your credit report before shopping for a mortgage. Review your credit report and us http://www.annualcreditreport.com where each year you can get one free creedit report from each of the three major credit bureaus (Experian, TransUnion and Equifax).
3. Errors on a credit report can be fixed. Clients can be encouraged to seek counseling to better understand their credit report, spot problems and work to fix them. To find a HUD-approved housuing couselor in your area, call 1-800-569-4287 or www.hud.gov/counseling.
4. Ordering a credit report will NOT negatively affect your credit score. What does have a major impact on your credit score is payment history. Whether you pay your bills on time and pay them in full matters. Another factor is outstanding debt. If you're maxed out on your credit cards, it can be a problem. The longer your credit history, the higher your credit rating so it's not good to close an unused credit card.
5. A good way to raise a credit score is to reduce debt. Lenders look at total debt load on no more than 36 percent of income including housing payment. It's a good idea to get installment debt (car loans, student loands, credit cards) down below 20 percent of total income.
6.. Only time removes accurate negative information in your credit report. According to the Federal Trade Commission, a consumer reporting company can report most accurate negative information for seven years and bankruptcy information for 10 years.
7. Some government programs allow for a lower credit score. When you have less-than-perfect credit the agent can hep by being knowledgeable about FHA loans, as well as state and local first-time homebuyer programs. Direct access to information can be had at http://www.YourIllinoisHome.com and it's "Financing" section to find links to programs offered by the Illinois Housing Development Authority, State Treasurer's Office, local HUD counselors as well as contact for city and county home-buying programs.
Article from the Illnois Realtor Magazine, March 2009
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