What IS Good Credit and why does it matter to YOU?
When you’re buying a home, Good Credit is when your lender is unable to tack-on a few hundred to several thousand dollars onto your closing costs OR charge you a higher interest rate than what may have been quoted.
It matters to anyone who would rather spend their money on selfish little personal luxuries for their new home rather than funneling that money to their lender.
If you’re buying a modest, inexpensive home and your personal credit is moderately good, the extra fees your lender will tack-on to your financing costs may amount to just a couple hundred bucks. (The cost of taking a few friends out for dinner and drinks.)
On the other hand, if your home is a bit higher priced, and/or your credit a bit “rougher”, your lender could tack-on thousands more to your financing costs. (Enough to buy that new super sized 3-D TV with the latest and greatest gaming set-up to go with it.)
HERE IS HOW IT WORKS…
When you get your MORTGAGE CREDIT REPORT (if it’s not a MORTGAGE credit report, you will not have your MORTGAGE CREDIT SCORES) it will include your three credit scores (one each from Experian, Equifax and Trans Union). If it’s a joint report (husband and wife) you will each have three scores. Here’s where it gets interesting, your lender doesn’t really care about your highest or lowest scores, loan pricing will be based on the LOWEST MIDDLE SCORE for all borrowers on the loan. That’s why I call the middle score your MONEY SCORE.
In case you didn’t notice the dramatic emphasis that I placed on getting the proper MORTGAGE CREDIT SCORES, a little clarification is in order. Each of the three credit repositories (Equifax, Trans Union and Experian) use separate and distinct algorithms (mathematical formulas) that analyze your compiled history of credit obligations and public records. Each of the three repositories utilize variations in their algorithms to suit the intended purposes of the lenders who will be reviewing them.
Not to get too technical, but the smaller and shorter the loan purpose, the “easier” the algorithm analysis, which creates your credit score. For example; If you apply for a small limit credit card or a small short-term loan, the repositories will use a forgiving algorithm analysis that will calculate a comparatively high credit score. On the flip side, as the amount of the loan, the credit limit or the length of the term increases, the algorithm increases comparatively, which in turn produces lower credit scores. The most stringent algorithms of all are used for mortgage lenders, making the MORTGAGE CREDIT SCORES the lowest of all.
THEREFORE I highly recommend that if you’re contemplating buying or refinancing a home, GET A MORTGAGE CREDIT REPORT FIRST! Only a mortgage lender can get a mortgage report. Find one that will accommodate your “lipstick on the pig” manipulations to improve your scores – and the price of your big new mortgage. The benefit of this easy little FIRST STEP will save you a boat load of cash beginning at the closing of your mortgage loan and ending years later when your loan is paid off.
TIP: DO NOT PAY OFF, PAY DOWN OR CANCEL ANY CREDIT ACCOUNTS until after your “lipstick on the pig” credit report is received, and then ask for guidance. Strange as it might sound, you can easily damage your credit scores by wandering into this without specific knowledge of the way credit scores are influenced.
Most people are unaware of the intricacies of credit scoring. Some of the outcomes of credit tweaking defy normal logic. Closing old credit cards that may have been dormant for years without any use at all, can adversely affect your scores! This is where conversation with your “credit expert” needs to be open and direct. The rewards are worth the effort.