Credit Score Info

A. What Do The Numbers Mean?
Credit Scores are a critical part of the loan process. Banks are very interested in how well you pay your bills and credit scores reflect this information.

If you have paid all of your bills on time, for a long period of time, you can expect that your scores will exceed 680 points (out of 850) and could possibly be in the 700s. Any score over 680 will have the most positive impact when applying for a loan.

If your score is between 620 and 680 you can still expect to get a very favorable rate, although those that are self employed and have credit scores under 680 might have trouble getting the best rates (see stated vs. full documentation income).

B. Late Payment Penalties
If you have some late payments on a mortgage or a car payment you might find that your score has moved below 620. At that point you can expect to pay a higher interest rate. It does not mean that you cannot get a loan. It simply means that the loan will no longer be considered A paper, but in the mortgage industry will be considered sub-prime.

Often if you are in a situation where you are going to get a sub-prime rate, a 2, 3 or 5 year loan program might be optimal (see adjustable vs. fixed rate). The 2, 3 or 5 year loan programs will give you an opportunity to refinance at a later date into a loan program with more favorable rates.

C. Liens and Bankruptcies
Liens and a bankruptcy will have the most adverse effect on your credit score. If you have a collection or a lien and it is not satisfied your scores could be in the 500's which will result in a higher interest rate loan. In some cases you might only be able to borrow 65% of the value of your home and other more stringent restrictions will apply.

If you completed a bankruptcy and it is over 1 year old loans are available. In many cases you will not be shut out of the loan process. Each year that a bankruptcy seasons will positively affect your credit score until 7 years have lapsed at which time the bankruptcy will not be a detriment to your credit score or interest rate.

This also applies to liens. Once liens are satisfied it will take time for your credit score to improve until they no longer affect the score. This time frame is shorter than for bankruptcies.