New research shows that consumers have a poor grasp of the importance of credit scores and what goes into them. (more…)

Only a low credit score stood between Alipio Estruch and a mortgage to buy a $449,000 Spanish-style house in Weston, Fla., a few miles west of Fort Lauderdale. (more…)

The scary thing? You can actually do it. Legally.

At least that’s the claim of some companies, who offer to sell or rent access to improved credit by adding low-scoring borrowers as authorized users of credit cards belonging to those with stellar credit.

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Each of the three major credit bureaus - Equifax, Experian and TransUnion - collects data from your lenders about your history of borrowing and paying back credit.

But how does this actually affect your Florida mortgage application? What sort of rates can you look forward to based on these scores? Let’s investigate further … 

The aforementioned companies compile that information into your credit report, which any lender can access whenever you apply for a Florida home loan. The Fair Isaac Corp. is the major producer of credit scores. It takes the information from those credit reports, applies its own trade-secret formula and, based on the three credit reports, distill three credit scores for you into one score ranging from 300 to 850.

Meanwhile, a new credit scoring system has been developed by the three major credit bureaus - the VantageScore. Their VantageScore reports are available for $5.95 each, a fraction of the cost of the FICO score. However, the scores are not a direct substitute for each other and mortgage lenders continue to look at FICO scores when reviewing mortgage applications, so they are the scores a Florida mortgage borrower should buy.

Borrowers with high FICO scores - the top tier ranges between 760 and 850 - can expect lenders to offer them lower interest rates and more loan choices. Scores of 620 or lower usually place a borrower in the “subprime” category, and they can expect to be quoted significantly higher interest rates and may be offered fewer varieties of loans. A FICO score of about 500-520 is generally the minimum that will qualify for a Florida mortgage.

Fair Isaac’s consumer website offers a chart that is updated regularly and shows how your FICO score can affect your interest rate.

For example, here’s what a borrower could have expected to be charged in Florida mortgage rates for a $300,000 30-year fixed rate mortgage, based on his credit score, according to March 2007 interest rates:

Such variations in interest rate can add hundreds of dollars to your monthly payment and can make a big difference in the amount of debt for which you can be qualified. Contact our brokers today to see how you can lock in the lowest rates.SOURCE: Bankrate.com

Marian Griffin knew about credit scoring before she visited a loan officer to apply for a Florida mortgage to buy a town house.

But she was quite surprised to learn that her actual credit report showed a lower score than she’d expected, despite a lifetime of clean credit.

The issue? Griffin had been late with two Florida mortgage loan payments after her husband died, because of funeral expenses, delays in receiving the life insurance payout and general emotional turmoil.

Each payment was 32 days late. Her Florida home loan had a 30-day cutoff.

When she first visited Beacon Financial Group, the Florida mortgage company was able to prequalify her for a 7 percent rate so that she could downsize to a town house. By the time she sold her home and went back to the lender, her loan officer was able to get her a rate at 6.75 percent.

As Griffin found out the hard way, credit’s role in the mortgage process is more than approval or rejection. Credit scores also help determine whether you get the best Florida mortgage loan rates available, or pay more to compensate the lender for taking a chance on you.

Credit reporting bureaus use a system to assign a number to each consumer, an indication of the quality of the person’s credit:

• The maximum is 850.
• Higher than 800 is rare.
• Higher than 700 is enough for red-carpet treatment, such as less paperwork and a lower down payment required.
• Lower than 620 spells complications for getting a mortgage.

“It’s almost got too much power,” said Scott Bray, branch manager of Contemporary Mortgage Services in Melbourne.

He’s seen clients approved for an FHA-backed loan, but later turned down for homeowner’s insurance because of their credit.

Check your report now, lenders advise, to give yourself time to clear up mistakes or bump up your credit score. That’s the best way you can ensure that you’re getting the best treatment with the most important investment you’ll ever make. Here are some tips for making your score the best:

1. Make payments on time: It’s obvious, but bears repeating.

Late payments are credit-killers, particularly if they occurred within the past six months of your mortgage loan application. A late car payment a few months ago will cause your score to plummet. If it’s at least a year old, you could have one late payment on your report and survive. After two years or so, late payments won’t affect your score anymore.

Rent and especially Florida home mortgage payments are crucial because they show a lender how responsible you’ll be in that area.

Be particularly careful with credit cards. Credit card companies are more likely to pounce on a late payment and use it to their advantage, jacking up the interest rates they charge you at a moment’s notice.

2. Establish credit: If you’ve never had a loan, lenders will have no track record for judging your responsibility, and credit is all about your financial history.

Opening 3-5 accounts to establish a good credit history and keeping it safe by sticking with department store and gas station cards is the way to go.

To play it even safer, charge something once, cut up the card, but let the account stay open for a year or so. Any longer than that, and you’ll need to use it once in a while to have it be any help to you. An account with no activity is useless. You need to demonstrate that you can control debts and improve credit.

3. Stay below your limit on credit cards: If your credit limit on a card is $1,000, and you carry a $950 balance, you’ll look maxed out, even though your debt obligation is low. Some people intentionally keep their credit limits low, to reduce their exposure to fraud.

4. Keep debt payments low: If you need to take out an auto loan, keep the monthly payments down. Your monthly obligation is more important than how long the remaining term is, when it comes to qualifying for a Florida home loan. The good news? Once you have the loan, the deal is done.

“For the next 360 payments, they’re never again going to ask about your credit report,” Bray said.

When you have poor credit, the list of lenders that will approve you for a Florida home loan can shrink down very small. In order to qualify for the absolute lowest Florida mortgage rates, you want to make sure that you are doing everything in your power to keep that credit rating as high as you can. There’s a direct correlation!

Many people will unknowingly hurt their chances of getting approved and therefore make it more difficult for themselves. Generally, the basic advice is to not spend more than you can afford. Simple, right? You’d be surprised. We’ll spell it out in even more detail. Here are a couple of things you will want to avoid more debt and damage to your credit if your score is already bad.

1. Opening more and more accounts. If a Florida mortgage lender sees you have a lot of new accounts open, it can make them wary to want to lend a large sum of money out to you. Not to mention the fact that it can bump up your debt to income ratio, which makes it more difficult to get approved for the amount you’re looking for in many cases.

2. Don’t have your credit pulled over and over. This one is a common mistake you never see coming. Many people, because of the difficulty of getting approved, apply with one Florida mortgage broker and/or lender after another and have their credit score pulled over and over again. Every time your credit is pulled, your score drops just a few points.

Seem fair? It’s not. But it’s also unavoidable. In some situations, it can be enough to disqualify you from decent rates on — or any eligibility for — Florida mortgage loans altogether. The best way to go is to apply with companies online that will give you a pre-approval without pulling your credit. Instead, they will ask you what your credit is like.

Once you’ve settled on a good arrangement, they will pull it to confirm — and you’ve avoided having six other people do the same.

3. Don’t miss current payments. Some people feel that since their credit score is already poor, it doesn’t make any difference whether or not they make their payments on time with their current home loan. That is not the case whatsoever. In fact, your credit score improves a little, everytime you make your monthly payments on time. Showing a pattern of improved credit, however small, can be hugely important! Get on the right track!

As you make up your mind to apply for a Florida home mortgage, one factor may get in the way: what does your credit score like? In order to receive approval, along with reasonable interest rates, individuals typically need a rating at least over 600.

A growing trend, however, is alternative credit reporting. Through new methods, you can bump up your score via recurring monthly payments, such as rent and insurance payments, that would actually be reported to credit bureaus. In the past, those types of payments generally have been ignored by creditors.

Many people are familiar with the three major credit bureaus - Equifax, Experian and Trans-union. However, there are a number of smaller credit bureaus in the country, said Norm Magnuson, spokesman for the Consumer Data Industry Association.

“They collect information on checking account activity, overdraft protection, payday loans and other things that are not reported to major credit bureaus,” he said.

Improve your credit, receive Florida mortgage loan approval

Monthly payments such as rent, child care and phone bills can also be added to some of these reports. Alternative credit reporting has been around for a while, but it has only recently started to grab the attention of major lenders.

With so many Americans saturated with credit card debt and credit offers, lenders are on the prowl for new customers, constantly exploring ways to prove potential customers’ credit worthiness. Moreover, people with little or no credit are looking for ways to show that they do pay their bills - in this way, having a bit of debt can actually be a positive thing in order to prove your payment responsibility and be approved for that Florida mortgage loan.

Anyone can get payment history information reported to one these credit bureaus, but the process is complicated. If you’re making these payments for rent or child care, for instance, on time each month, this information could help build your credit score. But there’s work and money involved.

How the system works

Credit card companies and financial institutions have the computer systems in place to automatically report payment histories. Landlords, utility companies and child-care centers typically do not.

To get this information into your credit file, you must verify that you made those payments. For a fee starting at $99, your data is uploaded it to online credit bureau PayRentBuildCredit (prbc.com). Once that’s done, customers may see a dramatic increase in their scores within six months.

The key to making this work: When you apply for credit, make sure to ask the lender to pull credit reports from all credit bureaus, not just the three major ones.

At least 75 percent of the U.S. population has accumulated enough credit history to generate a credit score from data reported to the three major credit bureaus, according to Fair Isaac. But the other 25 percent, or about 54 million people, has little or no credit history, and hence, no score. That causes a major problem when they consider a Florida home mortgage loan for the first time.

Fair Isaac did extensive research to find companies that collect nontraditional financial data in large quantities that could be used to help calculate a credit score. It has identified fewer than a dozen such repositories, Fair Isaac spokesman Craig Watts said.

They include groups that keep tabs on such things as how often a person uses overdraft protection and the number of checks they order each year. There are also groups that keep records on people who order books and music through book clubs, Watts said.

With that data, Fair Isaac is able to calculate a FICO expansion score, using the same analytical system it uses to calculate traditional FICO scores, which are widely used by major creditors.

But the program is in its early stages. If you wish to improve your rating, we still recommend the traditional way of doing so: consolidate debt, be patient and wait for pre-approval on that Florida home loan request.

Many important factors will influence your efforts to secure the perfect Florida home loan, but the most universal (and probably most important) is your credit rating. Surprisingly, most people are ignorant of what their credit score looks like, how it can hurt or help them, and how crucially mortgage lenders view it.

After all, pretty much any lender uses credit scores to determine whether to grant home loans to consumers, and at what interest rates.

“Credit scores are very powerful predictors of consumers’ future (bill-paying) performance,” Mike Fratantoni, Senior Research Director at the Mortgage Bankers Association, said.

The most widely used ranking system is the FICO credit score, developed by Fair Isaac Co. To calculate its scores, the company uses 22 pieces of data collected from the three major credit bureaus - Equifax, Experian and TransUnion - ranking consumers in the 300-850 range (the higher figures indicating superior credit).

The final number is a composite of individual ratings in five categories, weighted as follows:

• Payment history (35 percent)
• Outstanding debts (30 percent)
• Length of credit history (15 percent)
• Types of credit used (10 percent)
• New credit (10 percent)

Income, contrary to popular belief, is not a factor. After all, a person can have a very high income and still never pay their bills. A FICO score is calculated using the data provided by each credit bureau, and it’s common to see 50-point differentials between ratings. Because bureaus collect data at different times of the month, one may have inaccurate information, or be using data that isn’t current.

The bottom line is that the higher the score, the lower risk you present to a Florida home loan provider, and the less interest you’ll subsequently be hit with. Believe it or not, only 13 percent of the population has FICO scores of 800-plus, while the median is 723. There is no standard cut-off for home loans, as lenders employ their own regulations.Generally, however, those with scores above 740 receive the best rates.

To see your FICO score affects how you, take a 30-year, fixed-rate mortgage of $350,000. You would pay 6.24 percent in interest (or $2,153 monthly) with a score in the 720-850 range.

But, if your score drops to the 620-674 level, your rate jumps to 8.05 percent, and your monthly payments will soar to $2,581. That means an additional $154,131 in payments over the life of the loan, and many people are subsequently drawn to risky mortgage options designed specifically for applicants with bad credit.
Want to check out your FICO score? Another common misconception is that you can get your FICO score from your credit report. That’s not the case, but getting a credit report is still a good starting point. As per federal law, you are entitled to a free credit report from each major credit bureau once every 12 months. Most consumers rate annualcreditreport.com positively, as reports generally arrive within 10 days.

A TIP: Request a report from a different agency every four months so you stagger the three reports over the course a year. That way, if there’s bad information in one, it will be brought to your attention sooner.

Remember that your credit report and score are not the same thing. When you request a free credit report, a bureau will offer to calculate your credit score — for $6.95. Experian and TransUnion use proprietary formulas, while Equifax uses FICO scores. Pass up these offers, because the information is not as comprehensive as you’ll get elsewhere.

For the most detailed explanations on your FICO scores, go straight to the source — the credit education area at myfico.com. A score from one credit bureau costs $14.95, all three are $44.85. It’s useful to buy all three because large lenders either average the scores or take the middle one. Check your FICO scores several months before you apply for a home loan, whether it’s a conventional mortgage or a Florida home equity loan, so you give yourself ample time to address any issues that arise.

While negative factors that bring your score down remain on your report for seven years and can adversely affect your FICO score, lenders typically look at the past two years. One 30-day late payment shouldn’t make a difference, as lenders are more interested in long-term trends.

THE KEYS TO A GREAT SCORE:

– Pay all bills on time. This is probably the most obvious, and important, factor in the FICO calculation. If you’re consistently 30 days overdue, your score can drop by as much as 100 points, depending on how long an account has been open and how long ago the late payment(s) took place.

– Think before closing accounts. Lenders are looking for consumers with long credit histories that manage it well. But, because of identity theft, you don’t want too many open accounts that you don’t use. Be judicious and consider the lasting impact of your actions.

– Keep your balances low. The FICO score evaluates your total balances in relation to your available credit, known as credit utilization. Credit cards that are maxed out can lower your score, so try to spend only 30 percent of your credit limit. In other words, if you have a $10,000 limit on one card, keep the balance near $3,000.

– Minimize credit card applications. On average, a consumer has a total of 11 credit obligations - seven credit cards, four loans. Each time you apply for some form of credit, a lender requests to view your report. This inquiry is noted and can reduce your overall score, so refrain from applying when it isn’t needed. Avoid applying for any credit 18 months prior to your Florida home loan application or request for a similar, highly-important item.

In recently-filed lawsuits, a trio of major credit bureaus have been accused of shielding data, allowing Capital One to withhold credit limits on its customers’ card accounts, which can reflect badly on credit score calculations. This is a case with potentially wide-ranging significance for Florida home loan applicants.

Class-action lawsuits against the three national credit bureaus, charging that they allow a practice that lowers millions of individuals’ credit scores, writes syndicated real estate columnist Kenneth Harney.

The lower scores then raise the mortgage rates and fees that are quoted by lenders during the application phase. Sometimes the higher rates lead to monthly payments that are hundreds higher than they should be.

With the current South Florida housing market, that could make all the difference between squeezing your way into a home or being priced out altogether.

The lawsuits charge that, under the federal Fair Credit Reporting Act, the national bureaus — Equifax, Experian and TransUnion — are required to follow “reasonable procedures to assume maximum possible accuracy of information in consumer [credit] reports.”

Nonetheless, plaintiff William A. Harris Sr. alleges that all three bureaus allow Capital One, a venerable credit card giant, to withhold the credit limits on its customers’ accounts — knowing full well that such omissions frequently lower consumer credit scores.

While not the only firm that declines to report credit limits, Capital One is the biggest and best known. It is the fourth-largest issuer of Visa and MasterCards in the U.S. and has 49 million customers. Capital One declined comment on the suit but has acknowledged its policy in the past.

Industry experts say companies withhold limits as a way to discourage raids on their customer lists by competitors, who have access to national credit files. Cardholders with bad credit scores may be less desirable to creditors sifting through national bureau data in search of prospective candidates.

The lawsuits shed fresh light on a controversial practice that may be more commonplace than many consumers know. When Federal Reserve researchers examined 310,000 individual credit files two years ago, they found 46 percent of all consumers were missing at least one credit limit.

Consumers who are new to the marketplace or have relatively few cards or other credit accounts are generally hurt the most. That’s because the FICO credit score — the most widely used in the field — favorably weights a consumer’s “utilization” of available credit. The higher the credit usage relative to the limit, the lower the score.

For instance, say you have a credit card with a $5,000 limit:

• The highest monthly balance you’ve ever had on the card was $2,500, giving you a moderate, 50 percent utilization ratio.
• This would leave you in good shape, but, if your card company withholds reporting your limit, the scoring software may substitute your highest balance in place of your actual limit in order to compute your ratio.
• Therefore, if your most recent balance on the card was $2,000, this could appear to be very high usage of credit when your substitute limit is just $2,500 — not the actual $5,000.
• In turn, you appear to have a high utilization ratio of 80 percent and your credit score could be depressed significantly, the National Credit Reporting Association states.

A 20- or 50-point decrease in your credit score could mean a one percentage point difference in the Florida home loan rate you are quoted, according to MyFico.com. On a $216,000 fixed-rate, 30-year mortgage as of last week, an applicant with a 660 FICO credit score would typically be quoted a rate of 7.07 percent, or $1,447 a month in principal and interest.

An applicant with a 610 FICO score, meanwhile, would be quoted a rate of 8.05 percent, with a payment of $1,592 — a substantial $145 bump.

The lawsuits allege that Capital One’s policy has an adverse impact on consumers, making it appear as if a great many customers have used up more available credit than is actually the case, thereby lowering their credit scores. Because Equifax, Experian and TransUnion know the negative effects of this policy, the bureaus have repeatedly and deliberately violated the law by not requiring Capital One to report all card members’ limits.

Federal law does require the credit bureaus to strive to be accurate, and the suit argues that Equifax, Experian and TransUnion are not complying.

Yes, you’re reading this correctly: a little bit of debt can be a very good thing. Why is this the case? Why would you ever choose to owe money? Because it will prove to lenders that you’re a solid candidate for a Florida home loan. Allow us to explain …

Lenders rely on a credit report to decide whether to give you money, to determine the interest rate they will charge you and to establish your automobile or home insurance premium. If you have no track record demonstrating that you repay your debts, you may not qualify for a Florit home mortgage loan.

Simply put: you need to prove you are a responsible consumers in order to be approved for any Florida home loans. How else can this be accomplished unless you have a history of paying off debts?

Florida home loan approval: The importance of your debt ratio

The less money you owe, the better. Your debt ratio should be no more than 40 percent of your take-home income. If you and your partner take home $5,000 per month, for example, potential creditors prefer that your debt repayments, including your Florida mortgage payments, be no higher than $2,000 per month.

With this in mind, let’s actually go over loans that would appeal to creditors, those that make you more likely to receive lowered Florida home loan rates:

- A mortgage: Can look good to potential creditors, as long as you’ve kept up your payments. As an added bonus, the interest on mortgage payments may be tax-deductible. Moreover, hopefully, real estate is an asset that will appreciate in value.

- Car loans: Will not harm your credit rating provided you shop around for a reasonable interest rate. But it pays to keep in mind that a car is an asset that tends to depreciate in value the minute you drive it off the lot. Hence, the reason why a Florida home equity loan is often recommended instead.

- Bank loans: Won’t hurt your credit rating as long as you repay them regularly and on time. If you borrow to pay for your education, it’s assumed you’ll get the money back in the form of a better salary.

- Credit cards: Can be a good thing in the eyes of creditors, as long as you make regular payments. Creditors don’t like to see you carrying a credit card balance of more than 80 percent of your available limit.

Overall, you don’t wish to accumulate very high balances. We suggest using home equity to alleviate many debt concerns. But before you enter into the Florida mortgage loan process, you will need to show that you possess a reliable payment history in some way.