Learn The Basics
Understanding how credit scores work can help put you in the right direction to purchasing your first home.
Why You Should Care
- Credit scoring is a quick, accurate and consistent scientific method of assessing credit risk.
- The scores are based on data about an applicant’s credit history and payment patterns in a credit bureau’s file on that applicant.
- A score is based on data rather than human assessment and judgment.
- CREDIT SCORES CAN AND DO CHANGE.
What are the credit standards for mortgage loans?
- 12 months of on time payments for 3-4 pieces of credit
- Must have two years of good credit after filing bankruptcy
- Cannot currently be in consumer credit counseling program (FHA will allow it if you are in the agreement with one year of on time payments)
- If you do not have an established credit history with the credit bureaus, you may qualify with alternative credit.
Alternative Credit
What is it?
Alternative credit is any accounts that you pay on time that do not report to the credit reporting agencies. Here are some examples:
Telephone Bills
Rent payments
Cable TV
Proof of payment
- Cancelled checks – minimum of 12 consecutive months
- Money order receipts – minimum of 12 consecutive months
What is a Good Score?
740 – 800
Excellent
680 – 740
Very Good
Traditional lending is harder to obtain
Special, higher-priced options may be available
Things That Affect Credit Scores
- Payment History – late vs. on-time payment, collections, judgments & bankruptcies
- High credit account balances lowers credit scores
