Credit Scores For Home Loans
Credit scores are used throughout the United States. To obtain a home loan, a good credit score is crucial. The credit score is based on a calculated number that is used to reflect the borrower's credit history, which is supposed to reflect that person's credit worthiness. The credit score is retrieved from the three big credit bureaus, based on credit utilized.
When applying for a home loan, lenders use these credit scores to determine the risk for their loaning out of money. This helps the lenders have less risk from consumer's defaulting on their loans. The lenders primarily use the credit score to figure out if the consumer qualifies for the loan, the interest rate to apply, and the credit limit allowable. Without checking out the consumer's credit history, the use of credit would be based solely on a trusted system.
The calculated credit score is primarily based on credit card information from three major credit bureaus: Trans Union, Equifax and Experian. These three credit bureaus do not base their credit scores in relation to income, salary or other type of money coming into the borrower's household. It is solely based on the consumer's history of paying back debt, along with the type of credit the borrower may have.
Each of the three credit bureaus use different calculations to arrive at the credit score. The most widely used credit score is referred to as the FICO, which was developed by FICO and previously known as the Fair Isaac Corporation. Many of the home lenders that use a risk-based system to figure out if the borrower would likely default on the mortgage lender's loan, use the FICO credit score. Each of three credit bureau's calculate their score differently. Equifax has it's ScorePower credit scoring system, and Experian has it's PLUS score, and Trans Union has it's own scoring system. Each of the three bureaus also sell the VantageScore credit score. Additionally, many large lenders and major credit card issuers have also created their own proprietary scoring models. The range of FICO credit scores range from 300 to 850, and the VantageScore ranges from 501-990.
Ongoing studies show that the credit scores are reflective of the predictive risk in the underwriting process. The studies also show that borrower's with great scores, are able to obtain lower credit costs. It is definitely an advantage for the borrower/consumer to attempt to raise their credit scores, as most loan and credit card companies will lower the interest rate and fees based on the borrower's credit score.
Within the past few years, a system was created where Americans are now able to obtain one free credit report from each of the three bureaus with-in a twelve month period. Unfortunately, free credit scores are not able to be obtained. The consumer may obtain the credit reports from Annualcreditreport.com, and if a credit score is desired, it could be obtained for an additional fee. Once the report is downloaded, the consumer needs to review the report for any false items on the report. The consumer may file a dispute, with the credit bureaus having 45 days to investigate the dispute to determine if the dispute is valid.
It is also possible for consumers to obtain their credit scores or FICO scores directly from Fair Isaac. Various credit report monitoring agencies also offer free credit reports and scores through subscription based services. Consumers are also able to get a free credit report any time an adverse action, such as being denied credit and not receiving a loan or credit card due to low credit score, occurs. The free credit report must be applied for by the agency reporting the substandard credit report or score within 60 days.
Lori English is a real estate broker and internet business woman. As a web expert, she writes about LA homes for sale for lookiehomesla.com, mlm business opportunity websites. and other mlm and internet marketing opportunities. With her experience, certificates, and degrees, she understands real estate, the internet business, and how to invest in properties.
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