Credit Resume Builder
The 4 C's of Credit
CREDIT
CAPACITY
CAPITAL
COLLATERAL
Things the mortgage lenders and creditors consider when they see your credit report!
Think of your credit as a job resume. Similar to applying for a new job, your credit report shares similar categories like your characteristics, goals and purpose to determine your worth as a candidate. A resume is the key increasing your ability to move towards a job interview then ultimately gainful employment. Credit is a view in same manner to gauge your trustworthiness and how responsible you are. Just like a resume, your CREDIT REPORT provides a potential mortgage lender, creditor or employer an opportunity to review your personal information, history, experiences, and references to determine the level of trust or potential risk you may represent.
Credit is the first thing a mortgage lender will review to determine your credit worthiness and the capacity to make payment or rather, calculate your ability to repay. Having the capital is significant in determining this because it shows your full commitment to save and the value of your investment in securing the property/ies in question for collateral.
CREDIT
CAPACITY
Lenders check your credit score and history to assess your record of paying bills and other debts on time. (Even if you do not plan to buy a home now, it is always a good idea to build and maintain strong credit. Landlords often check it to make sure that you can pay the rent. It is also important if you want to apply for a mortgage or other credit line in the future, such as a student loan, car loan, or credit card.
Can you pay back the loan? Lenders look at your income, employment history, savings, and monthly debt payments, such as credit card charges and other financial obligations, to make sure that you have the means to take on a mortgage comfortably.
COLLATERAL
CAPITAL
Can you pay back the loan? Lenders look at your income, employment history, savings, and monthly debt payments such as credit card charges and other financial obligations. Lenders want to make ensure that you have the means to take on a mortgage comfortably.
Lenders “take into account” the value of the property and other possessions that you are or could pledge as security against the loan.
What is the difference?
Pre-qualification is an early step in your home buying process. When you prequalify for a mortgage loan, you are getting an estimate of what you might be able to borrow, based on information you provide about your finances and could include a credit check. This can provide an opportunity to learn more about mortgage loan programs to identity loan options to fit your needs and goals.
Pre-approval is an evaluation of your creditworthiness without having an executed purchase and sale agreement. A mortgage application must be completed with required income documentation for the lender to verify and credit check will be performed. If you are preapproved, you will receive a preapproval letter, which is an offer (but not a commitment) to lend you a specific amount based on the lender’s analysis with an expiration date.
What is a Credit Score and a FICO Score?
What is a credit score?
A credit score is a number between
300-850 that shows a consumer’s
creditworthiness. The higher the score,
the better the potential borrower looks
to potential creditors.
What is a FICO score?
A FICO Score is a type of credit score created by the Fair Isaac Corporation. Mortgage lenders use potential borrower’s FICO scores along with other details on borrower’s credit report to determine credit risk levels whether to extend credit. There are three FICO scores, on for each of the three-credit bureau: Experian, TransUnion, and Equifax.
Credit Scores are calculated
by 5 categories:
35% Payment History
This makes up about 35% of your score, it’s crucial to pay your bills on time. Even if you miss $5 dollar payment on a credit card, it can produce the same negative effect as missing a $500 payment! Don’t skip minimum payment requirements. Always be aware of whom you owe money to—even if it’s just a parking ticket; left too long and this could go to collections which will damage your score immensely!
30% Utilization Ratio
This is your level of indebtedness. This is how much of your total available credit you’re using. Try to keep your balance below 30% of your credit limit, and don’t ever go over 70%, even if you pay it off every month. For example, if you have a $10,000 Credit Card, don’t allow the limit to exceed $7,000. It is better to obtain a seperate credit card or increase your limit, then to go beyond the 70% utilization ratio.
15% Length of Credit
The longer you have an account open, the better. Think of it as a good track record. It shows you’re capable of managing credit.
10% Types of Credit
It’s good to have a mix of different types of credit to show that you can manage your financials well. But use caution as to what types of credit you have.
For example: A mortgage reporting on your credit history will produce a strong beacon score vs. a payday loan which can show you are a higher risk borrower.
General rule of thumb: Have at least 2 credit cards, a line of credit, and a mortgage reporting for at least 2 years plus and you will be a beacon stud!
Did you know?: 95% of banks require you to have at least 2 credit cards for a minimum of 2 years if you wish to qualify for “A” Credit rates!
10% Inquires
These happen every time you agree to look to obtain credit. But there is a big difference between a Hard Inquiry and a Soft Inquiry.
A hard inquiry happen’s when you open a bank account, a credit card, an auto loan etc.
A soft inquiry is when you search your credit history personally, or I help you obtain an report without “inquiring for credit”.
Note: Equifax and Transunion view credit inquiries for different types of credit within the similar time frame as a major red flag that will impact your score. If you are shopping for a mortgage, don’t shop for a Hot Tub or Auto Loan during this period, it could affect your approval!