1. What are credit scores and how can they affect my ability to secure a loan?
Credit scoring is a statistical means of assessing how likely a borrower is to pay back a loan. It is not dependent on income, assets, or any other non-credit factor. Credit scores range from 375 to 900 points. Most loan programs require a credit score above 660. Scores below 660 can cause some problems, and scores below 620 will often create significant problems for the borrower to secure a loan. Conversely, scores above 700 usually open the door for a borrower to be eligible for most any loan program. Credit scoring is based on payment history, outstanding debt, age of accounts, whether you have pursued new credit accounts, and the types of credit accounts in use. Your loan officer can help you evaluate and understand your credit report and will use it to determine which loan program is best for you.
2. Can I get a loan if I have had a bankruptcy?
Yes. It generally will have to be at least 3 years since the discharge of the bankruptcy. You need to have re-established credit. This is somewhat flexible depending on the amount of down payment, job history and other factors. Your loan officer can help you with these situations
3. What can I do if I am young and don’t really have much established credit?
Having established credit is very helpful when you are seeking a loan. This helps lenders evaluate your ability to handle debt and make payments on time. You can start to establish credit by securing a credit card, car loan or other type of loan. Then make timely payments on all your bills. Keep records of payments for phone and utilities and even rent payments. This will help to document your credit worthiness. Don’t make the mistake of thinking that the more credit cards you have, the better your credit will be. One or two established accounts are better than a lot of accounts. Too many accounts can be considered too much of a risk as well because it would be too easy to put yourself in debt by running up the balances on your credit cards.
4. What can I do to raise my credit scores?
There are a number of things that can be done to raise your credit scores.
You can pay off or pay down large balances.
After paying off balances it may help to close some accounts. Your loan officer can help you decide which accounts are better off closed and which ones you should leave open. As a rule of thumb, an older account with a good payment history and a low balance is better than a new account.
Often, a phone call or letter of explanation written to the credit card company, business or the credit bureau directly can help explain an unusual circumstance that caused a late payment on an account. If there are multiple late payments on an account, sometimes the only way to repair that credit history is time and patience, coupled with discipline to keep the balance low and the payments on time.
Talk to your loan officer for ideas on how to improve your scores and on whether to open, close, pay off or charge up accounts. Credit scores are based on a host of factors and the correct action for you to take will be dependant on those details.