Who determines a credit score?
Credit scores are computed by the three national
credit agencies: Equifax, Experian, TransUnion. Each
agency receives customer activity data on a monthly basis from creditors and
lenders. The agencies use this data to compute a numerical score that
measures the risk of lending money to a specific customer based on the data that
has been reported on that specific customer. The system used to computer
the score is
designed by Fair Isaac Corporation (FICO).
They measure different aspects of your credit record to produce a
score:
What
kind of credit is needed to get a mortgage?
Lenders use a credit score in order to
measure your credit risk.
A
score above 720 is seen as excellent credit, 640 to 700 is good, and below 620
is generally considered sub-prime.
The
final decision on a mortgage comes from the lender, and they often consider
additional factors including employment, income, savings, and calculations such
as a debt-to-income (DTI) ratio.
In fact, some
lenders specialize in loans to borrowers with low scores.
What
do lenders mean by "prime" or "sub-prime"?
Mortgages are classified into by "prime" or "paper"
grades. The most common are:
|
Prime
mortgage / “A” Paper mortgages |
|
Primarily deal with
lending business that is highly creditworthy, and therefore represents the
least risk of borrower default. |
|
“Alt-A”
/ Sub-prime mortgage |
|
When the lender's risk level
falls between prime and non-prime. Alt-A
products are more flexible and designed for borrowers with excellent
credit who do not quite fit the prime profile. |
|
Non-Prime
/ “B paper” mortgages |
|
Offered
to borrowers that may have recently filed for bankruptcy, foreclosure,
or have poor credit reports. |
How can I fix a my credit if I have some
problems?
Three types of organizations are available to
address credit issues:
| Monitor
services |
Watch the activity on
your credit records and will report activity to prevent unauthorized
activity on your credit file |
| Repair
services |
Work with both you and
your creditors to remove, correct, or remedy both problem and
erroneous reports in your credit file |
| Counseling services |
Work with you and your creditors to
advise you on how to use your credit responsibly. |
Additional questions?
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