Credit Scores

What is a credit score?

Before deciding on what terms lenders will offer you on a loan (which they base on the “risk” to them), they want to know two things about you: your ability to pay back the loan, and your willingness to pay back the loan. For the first, they look at your income-to-debt obligation ratio. For your willingness to pay back the loan, they consult your credit score.   The most widely used credit scoring models have a range between 350 (high risk) and 850 (low risk).

Credit scores only consider the information contained in your credit profile. They do not consider your income, savings, down payment amount, or demographic factors like gender, race, nationality or marital status. Credit scoring was developed as a way to consider only what was relevant to somebody’s willingness to repay a loan.

Different portions of your credit history are given different weights:

  • 35% of your score is based on your specific payment history.
  • 30% is your current level of indebtedness.
  • 15% is the time your open credit has been in use (ten year old accounts are good, six month old ones aren’t as good) and credit mix (installment loans such as student loans, car loans, etc. versus revolving and debit accounts like credit cards).
  • 5% is the number of inquiries — credit scores requested.

Your credit report must contain at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This ensures that there is enough information in your report to generate an accurate score. If you do not meet the minimum criteria for getting a score, we may still be able to help. For borrowers with no credit score we simply need to establish that you have been paying 3 things on time for a year. Give us a call and we can help determine that.

Latest Blog Post

Understanding Property Tax Increases

Notice of Assessment
Example of what a property tax re-assessment looks like in Michigan

Many home buyers have been facing a very challenging market over the past few years. The current supply of homes on the market just can’t keep up with the huge demand out there. It’s not uncommon for a home to come on the market and be sold in a matter of days after receiving multiple offers. With this fierce competition, prices have increased substantially over the last few years and has made it challenging for home buyers to find a home within the budget/payment they had planned for.  Many go over budget to get the home they want only to have another blow to that budget the following year due to the property tax increase.  This increase on the property tax portion of the mortgage payment can really hurt home owners enough to create a financial strain.

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