Common Credit Score Questions For First Time Home Buyers


Common Credit Score Questions For First Time Home Buyers

This Article On Common Credit Score Questions For First Time Home Buyers Was UPDATED On October 14th, 2018


One of the most important achievements in life (amongst many others) is to build a good credit history and thus achieve a respectable FICO score right?

  • We all work very hard in life, day in and day out
  • And in doing so we pay our bills in a timely and responsible manner so we can ultimately be debt free right?
    But what does that really mean to have good credit?….
  • Does it mean that once you’ve paid all your bills and have no more debt that you have good credit?
  • It’s not really that simple
  • On the contrary it’s actually quite interesting how credit is calculated and what it means to achieve a “good credit status”

FICO Credit Scores

Here’s how it’s broken down and how your FICO is determined:

  • 35% of score is based on the history of debt:
    • in other words, the ability/responsibility of paying debts on time (so long as you haven’t been in default and are current with all your payment obligations) demonstrates worthiness for credit over time
  • 30% of score is based on the amount or level of debt
    • in other words, how much debt you accumulate over time
    • how well you manage debt
    • and are in too much debt as opposed to manageable debt etc…
  • 15% of score is calculated on length of time you’ve been in debt
    • the longer you’ve been in debt with a good track record again demonstrated responsibility and worthiness
  • 10% of your score is based on new debt
  • 10% of score is based on the type of debt
    • credit cards
    • auto loan
    • student loans
    • mortgage etc…

Maximizing Credit Scores To Qualify For Mortgage

Achieving a good FICO score and maintaining it essentially means to constantly be:

  • in debt
  • stay in debt
  • maintain a good and consistent payment history on all your accounts throughout without any slip ups
  • all this without accumulating too much additional debt or not having enough debt

It’s like a fine balancing act all the time:

  • one small slip up and it could take months to recover
  • or a major setback could take years to recover and have rebuild your credit all over again

The idea of not being in debt is the right one:

  • However, only if you can afford it
  • You see, the fact is, we all need credit at one time or another
  • But how much and how well we manage that credit can make all the difference between walking over a very fine line or over a good tight rope

Maintaining Good Credit

Good credit doesn’t care how much money you have in the bank, savings account, stocks, bonds etc.. or how good your income is:

  • It’s all about the ability to repay, maintain, show stability and consistency without over extending your reach
  • It’s kind of like having friends, too many friends
  • You find out they’re not all what they appear to be, to few friends and you could find yourself a little lonely at times
  • But having just enough and the right type of friends who bring positive influences in your life can be positive and prosperous when surrounding yourself with the right people

Tips And Pointers In Keeping Good Credit

I suppose it all comes back to full circle, we work our whole lives to build good credit (buy having just the right amount of debt as explained above):

  • As we get older the goal is to be debt free, no car payments, no credit card payments and hopefully one day, no house payment
  • Which over a period of time of not having any credit activity your credit history becomes what’s called “indeterminable”
  • By this point in your life you’ve taken no new loans for years, have no new credit cards and paid them all of the old cards off
  • Hopefully you have saved a good amount of money and really don’t need the credit any longer as you pay cash for everything, this is truly the way to end up
  • Unfortunately, this is not how many of us end up as we rely on our good credit to carry us on
  • Therefore the importance of maintaining good credit is critical
  • This holds true because you never know what tomorrow will bring

How Mortgage Lenders View Borrowers With Bad Credit

Common Credit Score Questions is how mortgage underwriters view borrowers with bad credit. Borrowers can qualify for mortgage with prior bad credit.

  • Key word here is PRIOR. Lenders want borrowers have timely re-established credit after periods of bad credit for at least 12 months
  • Borrowers do not have to pay outstanding collections and charged off accounts off to qualify for home loans
  • However, borrowers do need to have timely payments after period of bad credit for at least the past 12 months
  • No late payments in the past 12 months
  • Same thing with a prior bankruptcy and/or housing event
  • Borrowers can qualify for mortgage after a prior bankruptcy and/or foreclosure, deed in lieu or short sale
  • However, no late payments after a prior bankruptcy and/or prior housing event
  • One or two late payments after bankruptcy and/or housing event is not a deal killer
  • However, multiple late payments, collections, charge off accounts after bankruptcy and/or housing event will be seen as disregard for credit and an approval is most not likely

About The Author Of Common Credit Score Questions

This blog on Common Credit Score Questions was written Alex Carlucci. Alex is a senior loan officer and contributing associate editor and writer for Gustan Cho Associates Mortgage Resource Center Alex is a producing licensed mortgage loan originator for The Gustan Cho Team at Loan Cabin Inc. Alex is an expert in originating and funding FHA Loans, VA Loans, USDA Loans, and Conventional Loans. What separates Alex Carlucci apart from other lenders is Gustan Cho Associates Mortgage Group specializes in helping borrowers with less than perfect credit. Alex works for a national mortgage banking firm that has a national reputation of not having lender overlays.

This BLOG On Common Credit Score Questions Was UPDATED On October 14th, 2018

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