Want to Buy A House? Better Know Your 'Score'

By Carolyn McCullough, President

Fayette County Board of Realtors

Planning to buy a home?

Do you know your credit score?

It is important for everyone involved to understand about credit scoring and the use of credit scoring and automated underwriting in the home mortgage origination process.

People who are considering purchasing a home should take a look at their credit record first to see how it might affect their ability to buy a home. A person's credit record reflects how that person has handled credit in the past and is currently paying bills. Mortgage lenders use this kind of information to see whether a person qualifies for a loan, and it can even affect the interest rate applied to the financing.

Many lenders have begun utilizing automated underwriting and credit scoring to electronically expedite the loan approval process. A credit score is often obtained as part of the credit report.

A credit score is a statistical way of predicting the likelihood that a borrower will repay a loan. Factors include individuals' records of repaying loans and credit card bills, any public record such as tax liens or bankruptcies, how often loans and credit cards are applied for, and how much is actually owed.

Those borrowers who charge up to the limit on credit cards might hurt their credit scores, and recent applications for numerous cards, even if unused, could also negatively affect credit scores. Borrowers who show a pattern of managing credit wisely, such as keeping credit balances low and paying bills on time consistently, get positive marks.

Other things which might determine the fate of a mortgage application include employment history, monthly debt payments versus current income, savings patterns and amount of savings, the type of loan, the value of the property, and the amount of the down payment planned or equity in the home.

Until recent times, it was necessary to evaluate all of this information manually by reviewing each piece of information separately, which was extremely time consuming. Many lenders now use a computer-based process to automate loan underwriting that evaluates the information easily, objectively and often within minutes. In addition to expediting the loan process, credit scoring treats each applicant objectively without regard to demographic or cultural differences, gender or marital status.

While it isn't best to have a lot of credit cards, it is important to use credit to establish a willingness to pay bills and establish a credit history. Developing a savings habit is also a good idea.

The most vital thing for potential homebuyers to do is to pay their bills on time or, at the very least, pay the minimum amount by the day it is due. Being consistently late is a negative mark even if the past due amount is made up later. Those who haven't been paying their bills on time should start doing so now, as credit scores emphasize your most recent payment records.

Potential home purchasers can check their credit records to make sure they are accurate. Credit reports are made by three private companies, Equifax (telephone number 880-685-1111), Experian (telephone number 880-672-7654), and Trans Union (telephone number 880-888-4213). Since credit records can vary from one company to another, potential purchasers might wish to contact all three to resolve any potential problem ahead of time. Modest fees are charged for each report, but if credit is denied, you can obtain a free copy.

(The Fayette County Board or Realtors is one of more than 1,800 local boards and associations of Realtors that comprise the National Association of Realtors. As the nation's largest trade association NAR is "The Voice for Real Estate", representing nearly 750,000 members involved in all aspects of the real estate industry. The Fayette County Board of Realtors can be contacted by calling 770-461-2401.)