Helpful Mortgage And Real Estate Advice

What Is A Credit Bureau Score And How Do Lenders Use Them?

By on November 18, 2013 in Mortgage Programs, Mortgage Videos

Applying for a home loan is one of the largest transactions you’ll make in your lifetime. With thousands of dollars exchanging hands, lenders must have a way to weigh your creditworthiness. Your history of bills, from utilities to student loans, paints a picture of your reliability. This history is collected and translated into a credit bureau score. As this number is revealed to the lender, they can decide if you are a risk or good candidate for a home loan.

What Is A Credit Bureau Score?

Your credit bureau score ranges between 300 and 850. Ideally, you want a number closer to 850 to gain instant home loan approval. This number is calculated from three different bureaus, including TransUnion, Equifax and Experian. All of your car payment, credit card, utility bill and credit card payment information funnels to these bureaus and forms a history, much like a resume. If you diligently pay your bills every month, your score remains high. Home loan lenders see you as a responsible borrower and are more apt to offer you funds.

What Affects It?

Late payments are one of the top reasons you may have a low score, but even multiple credit inquiries from prospective credit card companies hurt your score as well. Bankruptcy and collection accounts weigh heavily on your score for several years. Delinquent and charged-off accounts show that you either did not want to pay the debt or did not have the means to do so. In either case, lenders are wary about lending you more money. Even closing accounts affects your score. Lenders want you to have a wide credit-to-debt ratio. For example, if you have $1,000 in debt on credit cards, but hold a $25,000 credit limit, your score remains high. Closing that account after paying the debt wipes away this open $25,000 and lowers your score.

The Lender’s Tool

Your lender takes the credit score and bases your interest rate on it. Higher credit scores benefit you with lower interest rates. You are a low risk borrower showing that you pay your debts on-time and lenders want to entice you to stay with them. As a result, low interest rates prevail.

Be aware of your credit score before visiting a lender. Download your credit history each year from the three bureaus. Read through the information to make sure it is correct. Incorrect information may cause your loan to be denied if the problems are not resolved.


About the Author

About the Author: Jessica Lucas is the managing editor for Mortgage Home Base, a top real estate finance blog dedicated to helping borrowers and home buyers understand the home loan process. Follow Jessica on Google +, and share your comments here. .
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