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Mortgages and Credit Reports

General Guide to Credit Grades

Credit Guide Scoring

Credit Reporting Agencies

Mortgages and Credit Reports

Many home buyers are very worried about how their credit report will affect their ability to buy a home. Most people will not need to worry about the effects of their credit history during the mortgage process. However, you can be better prepared if you get a copy of your credit report to review before you apply for your mortgage. That way, if there are any errors you can take steps to correct them before you make your application.

If you have had credit problems, be prepared to discuss them honestly with a mortgage professional and come to your application meeting with a written explanation. Responsible mortgage professionals know there can be legitimate reasons for credit problems, such as unemployment, illness or other financial difficulties. If you had a problem that's been corrected, and your payments have been on time for a year or more, your credit may be considered satisfactory.

General Guide to Credit Grades

The mortgage industry tends to create its own language and credit rating is no exception. BC Mortgage lending gets its name from the grading of one's credit based on such things such as payment history, amount of debt payments, bankruptcies, equity position, credit scores, etc.

We have compiled a guide to help you estimate your credit grade. This is only a guide as many companies have exceptions that may result in more strict or more lenient guidelines.

A General Guide to Credit Grades

    Credit Debt   Max    Mortgage     Revolve     Install

    Score  Ratio  LTV   30  60  90  30  60  90  30  60  90

A+   670   36     95    0   0   0   2   0   0   1   0   0

A-   660   45     95    1   0   0   3   1   0   2   0   0

B    620   50     85    2   1   0   4   2   1   3   1   0

C    580   55     75    4   2   1   6   5   2   5   4   1

D    550   60     70    5   3   2   8   8   4   7   6   2

E    520   65     60    6   4   3   10  10  6    10  8   3

Bankruptcy/Foreclosure

A+   None Allowed Within 10 years

A-   Minimum 2 Years, Re-Established Credit

B    Minimum 2 Years, Some Lates  

C    Minimum 1 Year

D    Discharged

E    Possible Current

The figures shown here are estimates. When trying to figure your credit grade, keep in mind the following principles:

• Other Things Being Equal-When your have derogatory credit, all of the other aspects of the loan need to be in order. Equity, stability, income, documentation, assets, etc. play a larger role in the approval decision.
• Worst Case Scenario-When determining your grade, various combinations are allowed, but the worst case will push your grade to a lower credit guide. Mortgage Lates and Bankruptcies are the most important.
• Going Once, Going Twice-Credit patterns are very important. A high number of recent inquiries and more than a few outstanding loans may signal a problem. A "willingness to pay" is important, thus late payments in the same time period is better than random lates as they signal an effort to pay even after falling behind.

Credit Guide Scoring

In a nutshell, credit scoring is a statistical method of assessing the credit risk of a loan applicant. The score is a number that rates the likelihood an individual will pay back a loan. The score looks at the following items: past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit, number of inquiries.

Credit scoring will place borrowers in one of three general categories.

• First, a borrower with a score 680 and above may be considered an A+ loan. The loan will involve basic underwriting, probably through a "computerized automated underwriting" system and be completed within minutes. Borrowers falling into this category may have a good chance to obtain a lower rate of interest and close their loan within a couple of days.
• Second, a score below 680 but above 620 may indicate underwriters will take a closer look at the file in determining potential risks. Borrowers falling into this category may find the process and underwriting time no different than in the past. Supplemental credit documentation and letters of explanation may be required before an underwriting decision is made. Loans within this FICO scoring range may allow borrowers to obtain "A" pricing, but loan closing may still take several days or weeks as it does now.
• Third, borrowers with a score below 620 may find themselves locked out of the best loan rates and terms offered. Mortgage professionals may divert these borrowers to alternate funding sources other than FNMA and FHLMC. Borrowers may find the loan terms and conditions less attractive than the "A" loans, and it may take some time before a suitable funding source is located.

As more companies utilize credit scoring, the loan approval and closing time will be compressed for most consumers. In the future, a high FICO score may be your ticket to a speedy and competitively priced mortgage loan.

Credit Reporting Agencies

Equifax
PO Box 105873
Atlanta, GA 30348
(800) 685-1111

National Consumer Assistance Center
PO Box 2002
Allen, TX 75013
Consumer Credit Questions
888 EXPERIAN (888 397 3742)

Trans-Union
PO Box 390
Springfield, PA 19064
(800) 916-8800
(800) 851-2674

Contact Alliance Lending Services, Inc . by:
phone: (504) 834-8771
fax: (504) 834-8774
e-mail: Email

Alliance Lending Services, Inc.
4444 York Street
Suite 101
Metairie, Louisiana 70001