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Home Lending Scores Explained

By | Home Buying

Did you know that there’s more to getting approved for a home loan than just the standard credit score? In fact, most lenders take a variety of scoring information into account when determining your ability to qualify for a home loan. The more you understand about the process, the better prepared you can be to get the home of your dreams.

Standard Credit Scores
One of the most popular methods of determining approval for a home loan is your FICO score. Based on several benchmark factors, including credit history and access to credit as well as income, you are assigned a number score ranging from 300-850. Your credit score tells prospective lenders what your potential risk factor is and whether you pay your bills late or not at all. The higher the score, the better chances you have of obtaining the best home loan.

eFunds DebitBureau
The eFunds DebitBureau can also help you when working toward a home loan. By collecting important consumer data from the DebitBureau, the eFunds score consists of specific economic factors, such as reporting how often your credit is checked, how many previous closures or bounced checks you may have and how much debt you currently have. With eFunds, your debit history score takes into account 78 standard data combinations. Using this risk model, many applicants are approved when typical credit scores may indicate potential trouble.

When the three major credit companies join together, you get the VantageScore, which is based on a letter system similar to grades in an academic environment. With a score ranging from 501-990, your VantageScore is a combination of data retrieved from your collective credit scores that reflects the depth of credit in your profile. Again, payment history is decisive, as it reflects more than 30 percent of the VantageScore.

It is never too late to make changes to improve your credit and get the house of your dreams. Every year, you should get an updated copy of your credit report – it is free to do so – to make sure it is reflecting your financial habits in a productive way that helps you build your life as you go. With so many options out there, you are sure to find the right home loan!

As long as I pay my bills on time every month I should have high credit scores, right?

By | Ask a Credit Expert

When we were in the dark about credit and credit scores (just 15+ years ago), someone would have told you YES.  However, now that it is almost 2011 we have some more light on the subject and know that just paying our bills on time every month does NOT give us a high credit score.  It helps our credit scores, but it is not the only factor.  There is a balance to having an optimal credit score, one that takes work.   Credit scores are calculated by an algorithm created by Fair Isaac Company to rate consumers on how much of a risk they are when it comes to paying back borrowed money.  Although we have not gained access to the algorithm we have gained some insight into the categories that make up the credit score and how some things can affect our scores.

Our credit scores are broken up into 5 categories: Payment History (35%), Amounts Owed (30%), Length of Credit History (15%), New Credit (10%), and Types of Credit in Use (10%). Making your monthly payments on time is a big part of your credit score (35% to be exact), but it is not everything.  It is important to: keep a good balance of the types of accounts that you have, keep your accounts in good standing as long as you can – the older the accounts the better, keep your balances paid off each month or keep the balances under 50% of the line of credit, if possible.

If you are going to be applying for credit soon, make sure you don’t open any new accounts right before because that can make your credit scores drop.  You also don’t want to pay off your cards and then start closing them out, this shortens your Length of Credit History and will actually make your credit scores go down as well.

Reaching and maintaining a high credit score takes work and understanding of credit.  But you are not alone. Ovation Credit Services is always here to answer your questions and help you achieve your credit goals!

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