How Credit Works
Do you wonder how your credit record will affect your application
for a mortgage loan? Do you know your credit score?
A credit history
is an important factor in buying a home. Your credit history shows
how well you've managed your finances and repaid your debts over
time. Lenders prefer to make loans to people who have a history
of repaying their debts.
Ways to Establish Credit
If you have no credit history, try to establish one using methods
below. Click the links to learn more about each:
Understanding Credit Reports
Your credit history is gathered into a report and may include information
from three major reporting companies:
- Equifax
- Experian
- Trans Union
Banks and other lenders buy your credit report from these
companies so that they can review your credit history and your credit
score.
A new credit reporting agency, Pay Rent Build Credit,
offers credit reports for consumers who have no credit history but
have made rent and utility payments.
Credit Scores
Your score is calculated each time a credit report is requested.
Therefore your score can change:
- As new information is added to the credit bureau report or credit file
- As time passes, and the relative weight of a derogatory credit
factor diminishes
This means, recent good behavior will help improve a low credit
score. However, there are no quick fixes! A short-term
improvement will not cause a score to improve dramatically.
FICO Scores are the most common credit scores used in mortgage
lending. These scores rank consumers on a scale of 300-950. Higher
scores indicate less risk and lower scores indicate greater risk
of not repaying a loan.
To learn more about these topics, click the links:
Next you'll see a demonstration of how to read a credit report.
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