Important Facts You Should Know About Lending
1. If I put down a certain amount of money on a house, I won’t need to show any income in order to qualify for a mortgage. FALSE
In the state of Pennsylvania, in March 2011, the governor of Pennsylvania outlawed “no income or stated income loans.” All mortgages in the state of Pennsylvania require income verification going back 24 months.
2. If I put down 30% or 40%, my credit score and credit history do not matter. FALSE
Although the interest rate will not increase if a down payment of 40% or more is provided, an underwriter for a lending institution will still scrutinize the payment history and usage of credit in determining a borrower’s ability to pay a mortgage.
3. It only takes two months to establish credit. FALSE
If alternative sources of credit are not used in determining a borrower’s ability to repay a debt, it takes seven months on a credit card or any other type of installment debt that is newly established, to create a score on our credit bureau system. It may show a payment history but not enough to generate a score.
4. Is it true that no credit is better than bad credit? FALSE
It is required to have a credit score in order to purchase a house and obtain a mortgage. There are some exceptions where they will allow alternative sources of credit such as rental references, utilities and cell phone bills to determine a borrower’s willingness to repay a loan. If not, a buyer must show a positive history.
5. Shouldn’t I charge up the new card and pay it off to show a good credit history? FALSE
When we pull credit reports, we see the final balance on the last billing cycle. If you charge it up and pay it off, all we see is the card appears maxed out. This brings the scores down. The proper way to get the highest score possible is to use the card for a small item once per month. This shows minimal use of consumer debt, which brings the scores higher.
6. Is my Credit Karma score the same as the one you pull? SOMETIMES
What most people don’t realize is that Credit Karma shows consumers what their score will be when they are applying for credit cards. That system shows a different algorithm which is used in determining a borrowers credit profile. Most consumers don’t have access to the same scoring system used for mortgages. It doesn’t mean that we lowered your score when running your credit, it just means that the scores aren’t the same in the two systems.