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| What Credit Score Do I Need? |
Credit scores remain one of the key components a lender uses to evaluate a
potential borrower.
Because the report essentially rates a person's responsibility - do they pay
your bills on time? - having a late payment, collection or settlement has
negative consequences far beyond any relationship to the amount involved.
Banks are in the business of lending money and being repaid in a timely
manner; they need to security to manage their investments and cash flow.
Every borrower on a loan, whether they will be an occupant of the property
or not, has their credit pulled. They'll receive 3 scores, one from each of
the three major bureaus: Experian, Equifax, TransUnion. Lenders use the
middle score (not the average), and the lowest middle score of anyone on the
loan is the operative number.
Scores range from 400 to 850, the higher the better. While there are
lenders who will offer loans as low as 580, the lower the score the more
expensive the loan and the higher the rate will be. For conventional loans,
being above 700 will qualify for most loans with the least extra costs.
A lender must meet Fannie Mae and Freddie Mac guidelines if they want to
sell them the finished loan. Regardless of any of their guidelines, lenders
can add an overlay to make it more restrictive. Loans are voluntarily
entered into by a lender; the government can not force a lender to give a
loan and can't dictate minimum requirements, such as credit score.
To qualify for an FHA insured loan, the credit requirement is a 620 score.
However, many lenders are more restrictive and require a score of 660.
Further, under discussion in Washington is whether the FHA needs to raise
the number.
There are methods that you can use to improve your credit score. You may
be able to use some of these methods or employ the services of companies
who have expertise in improving credit scores. |
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