At Mills Realty the question we are faced with is “How do I get a mortgage? First of all, you must first understand what is credit score exactly and what traits must a build. Credit can be used as a tool to gain financial freedom and if not used reasonably, it can be a shackle to financial slavery. People who jump into credit without much reflection or consultation from licensed professionals usually go through a lot of unnecessary problems that can be avoided cause individuals to acquire tons of debt with no possible way out. Credit literacy What are credit scores? A credit score is a numerical expression based on a level analysis of a person’s credit files, to represent the creditworthiness of an individual. A credit score is primarily based on a credit report information typically sourced from credit bureaus. The main scores used by credit bureaus are:
- FICO Score range: 300-850.
- VantageScore 3.0 range: 300–850.
- VantageScore scale (versions 1.0 and 2.0): 501–990.
- Experian’s PLUS Score: 330-830.
- TransUnion New Account Score 2.0: 300-850.
- Equifax Credit Score: 280–850.
Lenders, such as banks and credit card companies, use credit scores to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt. Lenders use credit scores to determine who qualifies for a loan, at what interest rate, and what credit limits. Lenders also use credit scores to determine which customers are likely to bring in the most revenue. The use of credit or identity scoring prior to authorizing access or granting credit is an implementation of a trusted system.
The 5 Cs
Do you have the financial capacity to support debt and expenses? A lender will consider your other debts and expenses when determining your ability to repay the loan. This is done by evaluating how much you owe in comparison to how much you earn. The lower your ratio, the more confident creditors will be in your capacity to repay the money you borrow.
One of the first steps is to begin keeping records of your income and cash flow.
Capital refers to your net worth — the value of your assets minus your liabilities. In simple terms, how much you own (for example, car, real estate, cash, and investments) minus how much you owe.
When it comes to your assets is there enough to help support the financing you want? Answering this for lender will have a major impact on getting financing.
Collateral refers to any asset of a borrower (for example, a home) that a lender has a right to acquire ownership of and use to pay the debt if the borrower is unable to pay the loan payments as agreed by the borrower.
In addition to looking at the value of your collateral, the bank will consider any existing debt you may still owe on that collateral.
Lenders consider many outside circumstances that may affect the borrower’s financial situation and capability to repay. Some lenders develop their own loan decision “scorecards” using aspects of the 5 C’s and other factors. Example: borrower’s credit used vs. credit available.
Local laws can change these types of factors—often out of your control—may affect your ability to make payments. Laws and be a positive or a negative depending on the legal climate.
When lenders evaluate character, they look at stability — for example, how long you’ve lived at your current address, how long you’ve been in your current job, and whether you have a good record of paying your bills on time and in full. The lender may consider your experience and track record in your dealings to evaluate how trustworthy you are to repay.
Work experience and personal credit history are all character traits banks will consider. Your personal integrity and good standing—and the integrity and standing of those closely tied to you such as a spouse.