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Imperfect Credit? Not a problem at LoanGal.com
Had
a setback? Looking to re-establish your credit? LoanGal.com can help
with your home financing needs, even if you have imperfect credit.
We can help you purchase a home, cash out your equity or consolidate
high interest and credit card debt. In addition, we can close
your loan with full or stated income documentation. Don't let
your past dictate your future. Call us today and get
pre-approved in only 10 minutes!
Go
ahead and call us today to get pre-approved at 661-287-9888.
At LoanGal.com, imperfect credit is not a problem!
Additional Credit Information and Resources
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LoanGal.com Can
Help Boost your Credit Scores
Consumers interested in purchasing or
refinancing a home will pay an interest rate based on current market
conditions and their ability to pay back the loan. The borrower’s
income and debt ratios are taken into consideration by the lender,
as well as the predictability factor provided by credit scoring.
It’s important to have a one of our mortgage professionals in your
corner who has a keen eye for solutions to improving credit scores
in an effort to get the best interest rate possible.
Interest rates associated with
various loan programs are broken down into schedules based on credit
score ratings. While each lender has its own guidelines, it’s safe
to assume that as the consumer’s credit score goes down, interest
rates will go up.
A borrower with an outstanding credit
rating will get what is called an A-paper loan. This type of
borrower is rewarded with a lower interest rate because they have a
proven track record of using credit sensibly and paying their bills
on time.
Loans designed for consumers with
less-than-perfect credit – sometimes referred to as “sub-prime” –
can range anywhere from A-minus, B-paper, C-paper or D-paper loans.
If you have already taken out a
mortgage loan with a higher interest rate because your credit score
was a little under par, you will really appreciate the value in
doing a little work to improve your credit score. Refinancing
from a D-paper loan to a B-paper classification can save literally
thousands of dollars in financing fees over time, even though the
B-paper loan is still considered sub-prime.
One of our
qualified mortgage consultants will guide you through the nuances of
the process of improving your credit score to refinance and save
money. First and foremost, he or she will want to review the
terms of the existing mortgage loan to determine if you have a
pre-payment penalty clause written into your contract. In general
terms, that means that if you sell the home or try to refinance
before the pre-payment penalty
expires and you have not already paid
off 20 percent of the original loan amount, you will most likely
have to pay a 3 percent fee back to the lender to compensate for the
high risk and high costs incurred to provide that financing.
Next, you
should obtain free copies of your credit reports from
www.annualcreditreport.com and start
working on improving the credit score six months prior to the
expiration date on your existing pre-payment penalty.
There are
five factors that make up the
credit score and your mortgage consultant can coach you through some
basic strategies to improve your credit score. This means very
conservative use of credit cards, paying off debt as much as
possible and not applying for additional credit cards unless you
will benefit from such action. You will want to verify that negative
items you have paid off are being removed from your credit report,
and that good credit history is being reported to all three bureaus.
You’ll also want to dispute any errors that appear on your credit
reports and seek to have those removed entirely.
Once your credit score improves, it’s
time to refinance at a better interest rate. Our mortgage
professionals should look for a program that carries no more than a
two-year prepayment penalty so you can continue to refinance as your
credit score increases. You can repeat this process until you reach
A-paper status and secure the best interest rate available.
This is a
strategy that also works well for first time home buyers who do not
have enough credit history under their belt to get an A-paper loan
at the time of purchase. The important thing is to work with one of
our mortgage consultants who can give you a roadmap to follow and a
strategy for success in building personal wealth.
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Do’s and Don’ts
During the Loan Process
When
you fill out a credit application, we run a credit report for the
underwriter. Each lender and each loan program has different
guidelines they must follow. You should not do anything that
will have an adverse affect on your credit score while your loan is
in process. We know it’s tempting… If you’re moving into a new
home, you might be thinking about purchasing new appliances or
furniture, but this is really not the right time to go shopping with
your credit cards. You’ll want to remain in a stable position until
the loan closes and give us the opportunity to help you lock in the
best interest rate we can possibly get for you.
Here
is a handy list of do’s and don’ts that you should adhere to after
your loan application has been submitted to the lender.*
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DON’T APPLY FOR NEW CREDIT OF ANY KIND – If you receive
invitations to apply for new lines of credit, don’t respond. If
you do, that company will pull your credit report and this will
have an adverse effect on your credit score. Likewise,
don’t establish new lines of credit for furniture, appliances,
computers, etc. |
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DON’T PAY OFF COLLECTIONS OR CHARGE-OFFS – Once your loan
application has been submitted, don’t pay off collections unless
the lender specifically asks you to in order to secure the loan.
Generally, paying off old collections causes a drop in the
credit score. The lender is only looking at the last two years
of activity. |
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DON’T CLOSE CREDIT CARD ACCOUNTS – If you close a credit
account, it can affect your ratio of debt to available credit
which has a 30% impact on your credit score. If you really want
to close an account, do it after you close your mortgage loan. |
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DON'T MAX OUT OR OVER CHARGE EXISTING CREDIT CARDS – Running up
your credit cards is the fastest way to bring your score down,
and it could drop up to 100 points overnight. Once you are
engaged in the loan process, try to keep your credit cards below
30% of the available credit limit. |
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DON’T CONSOLIDATE DEBT TO ONE OR TWO CARDS – Once again, we
don't want you to change your ration of debt to available
credit. likewise, you want to keep beneficial credit history on
the books. |
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DON’T RAISE RED FLAGS TO THE UNDERWRITER – Don't co-sign on
another person’s loan, or change your name and address. The less
activity that occurs while your loan is in process, the better
it is for you. |
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DO
JOIN A CREDIT WATCH PROGRAM – Your credit card company may be
able to provide you with a free credit watch program that can
alert you to any changes in your credit reports. This can
be safeguard to help you intervene before the underwriter sees a
problem. |
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DO
STAY CURRENT ON EXISTING ACCOUNTS – Late payments on your
existing mortgage, car payment, or anything else that can be
reported to a CRA can cost you dearly. One 30-day late
payment can cost you anywhere from 30 to 75 points on your
credit score. |
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DO
CONTINUE TO USE YOUR CREDIT AS YOU NORMALLY WOULD – Red flags
are easily raised within the scoring system. If it appears
you are diverting from your normal spending patterns, it cause
your score to go down. For example, if you’ve had a monthly
service for Internet access billed to the same credit card for
the past three years, there's really no reason to drop it now.
Again, make your changes after the loan funds. |
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DO
CALL YOUR LOAN CONSULTANT AT LOANGAL.COM – If you receive
notification from a collection agency or creditor that could
potentially have an adverse affect you your credit score, call
us so we can try to direct you the right resources and prevent
any derogatory reporting to credit bureaus. |
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SOURCE: Based on The Top 10 Credit Do’s and Don’ts During the Loan
Process, provided by Credit Resource Corp.
www.creditresourcecorp.com
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Introduction to Credit
Scoring
The
subject of credit scoring has become an increasingly hot topic, and
for good reason. For many years, the general public only
associated the concept of credit scoring with the need to purchase
high-ticket items such as a new car or a home.
Today, credit scoring goes much further. Your credit score can
affect your ability to get a good rate on commodities such as car
insurance, cell phones, or even determine whether or not you get the
job that you want. Indeed, the financial snapshot provided by the
credit score has also become a gauge for many employers, especially
those who seek to place employees in a position of financial
responsibility.
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The History of Credit Scoring
The
credit score system used today has evolved since the 1960s. It was
originally designed to provide lenders with financial profiles on
cons who wished to borrow money. The lenders' big concern was
whether or not an individual had the ability to repay a loan, and
establish what percentage of risk might be involved.
Congress passed the Fair Credit Reporting Act in 1971 to establish
guidelines for fair practices in regard to the use of credit
scoring. This law was designed to promote accuracy in
reporting and protect the privacy of consumers. In light of
the increased use of credit scoring and a growing fear of identity
theft, recent legislation has been passed to further protect
Americans and improve consumer awareness.
The
Fair and Accurate Credit Transactions Act of 2003 (sometimes
referred to as The FACT ACT or FACTA) was signed by President George
W. Bush on December 4, 2003. This amends the Fair Credit Reporting
Act, and provides each American the ability to obtain one free
credit report every 12 months from each of the three main credit
reporting agencies (CRAs); Equifax, Experian and TransUnion. Those
bureaus have created a central web site,
www.annualcreditreport.com, to accommodate Americans who
wish to obtain copies of their credit report.
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Why Your Credit Score is So Important
The
credit scoring model seeks to quantify the likelihood of a consumer
to pay off debt without being more than 90 days late at any time in
the future. Credit scores can range between a low score of 300 and a
high score of 900. Most consumers have credit scores ranging between
400and 800. The higher the score, the better it is for the consumer,
because a high credit score translates into a low interest rate.
This can save literally thousands of dollars in financing fees over
the life of the loan.
Only one
out of 1,300 people in the United States have a credit score above
800. These are people with a stellar credit rating that get the best
interest rates. On the other hand, one out of every eight
prospective home buyers is faced with the possibility that they may
not qualify for the home loan they want because they have a score
falling between 500and 600.The following chart illustrates how an
underwriter interprets the credit score in terms of risk, and how
the interest rate is affected as a result. Mortgage lenders consider
a score of 700 or above to be very good.
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The Five Factors of
Credit Scoring
These are
the five most important factors in determining your credit score. Consider these five factors when trying to improve your
credit.
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PAYMENT HISTORY has a 35% impact. Paying debt on time and in
full has a positive impact, and late payments, judgments and
charge-offs have a negative impact.
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OUTSTANDING CREDIT BALANCES have a 30% impact. Debt ratio of
outstanding balance to available credit is important.
Keeping that below 50% is wise and below 30% even wiser.
It is never a good idea to close an account; the debt
ratio will go up and the number of seasoned lines will decrease.
Pay outstanding debt down as close to zero as possible and
evenly redistribute the remaining balance among the open lines.
The increased interest incurred by moving a balance from a 0%
card to a 23% card will be minimal relative to what the
increased mortgage debt might be with a low credit score.
Hitting the maximums of available credit can be very negative.
It may be worth calling and asking the credit company to
increase your available credit to lower the debt ratio, provided
they can do so without a hard credit inquiry.
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LENGTH OF CREDIT HISTORY has a 15% impact. The length of time a
particular credit line has been opened is important. A seasoned
borrower is stronger. Opening new credit cards will decrease the average length,
and therefore hurt this portion of the score.
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TYPE
OF CREDIT has a 10% impact. A mix of auto loans, credit cards
and mortgages is positive, rather than a concentration in credit
cards only.
Careful, too, when getting credit at a store that is not a
department store: the credit agencies frown on cards for more
specialized stores where you’re likely to only make one
purchase, as they seem to show desperation.
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CREDIT INQUIRES have
a 10% impact. Hard inquiries for credit will negatively impact
the score. Auto and mortgage inquiries receive special treatment
and 20 inquiries can be made in a 14-day period for auto or
mortgage and will be treated as only 1 inquiry. The maximum
number of inquiries that will reduce the score is 10. Any
inquiries beyond that in a six -month period will have no
further impact on the borrower. Each hard inquiry can cost 2-50
points on a credit score. |
If you feel you could benefit from credit
counseling, protect yourself from fraudulent organizations.
The U.S. Department of Housing and Urban Development keeps a list of
approved credit counseling agencies.
HUD approved credit counseling agencies.
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How Does a Low
Credit Score Affect My Interest Rate?
Lenders estimate your ability to pay back money based on your credit
score. The risk factor they take on is built-in to your interest
rate as a financing fee. Therefore, a low credit score results in a
higher interest rate, higher monthly fees, and a higher amount of
interest being paid over the total life of the loan
Referring back to our chart, a borrower with a credit score of 620
would be questionable to an underwriter. While the lender may
agree to provide financing, the increased interest rate is factored
into the monthly payment. The following chart illustrates the
difference in the amount of interest paid over the life of the same
loan with three different credit score scenarios.
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30-Year Fixed Rate with a Principal Loan Amount of
$250,000 |
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FICO SCORE |
APR |
MONTHLY PAYMENT |
INTEREST PAID |
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Above 720 |
5.71% |
$1,453 |
$272,928 |
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620 to 719 |
5.796% to 7.84% |
$1,466 to $1,807 |
$277,845 to $400,381 |
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Below 620 |
8.452% to 9.234% |
$1,914 to $2,054 |
$438,957 to $489,365 |
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How Does the Underwriter View my Score?
If you
are considering a home purchase, it is in your best interest to make
every effort to increase your credit score, especially if you know
you have issues you should be dealing with. It is often the case
that people are not aware of bad marks on their credit reports until
they apply for financing for a major purchase, such as a home.
As part
of the loan process, we run a credit report for you. But you can
take advantage of the opportunity to get a free credit report from
each of the three main CRAs: Equifax, Experian and TransUnion.
Those bureaus have created a central web site,
www.annualcreditreport.com, to accommodate Americans who
wish to obtain copies of their credit report.
We
believe it is best to have the full overview up front.
Different CRAs have different methods of calculating these scores,
and may also have different information contained within their
findings. Consider the adage, “Why jump over nickels to pick up
pennies?” If additional reports are needed within a 12-month period
from any of the three CRAs, the cost is extremely minimal compared
to the potential savings that can be realized by an improved credit
score, and if you run a credit report on yourself it will not affect
your own score as an inquiry. The underwriter who is making the
decision as to whether or not you should get the loan you are asking
for will generally look at the scores generated from all three CRAs.
Typically, the score will not be the same from all three reports,
and the underwriter will consider the middle score as a barometer.
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Disputing Errors On
the Credit Report
If you
are in the process of reviewing your credit reports, the first thing
to do is make sure that the information contained within the reports
is correct. In June 2004, The U.S. Public Interest Research Group
published the results of a survey it conducted involving 200 adults
in 30 states to test the validity of credit reporting. Their
findings were as follows:
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Twenty-five percent (25%) of the credit reports contained errors
serious enough to result in the denial of credit.
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Seventy-nine percent (79%) of the credit mistakes of some kind.
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Fifty-four percent (54%) of the credit reports contained
demographic information that was misspelled, long-outdated,
belonged to a stranger, or was otherwise incorrect.
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Thirty percent (30%) of the credit reports contained credit
accounts that had been closed by the consumer but incorrectly
remained listed as open. |
If you
find that you have errors on your credit report, follow this
procedure to correct those errors.
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Make
a copy of the report and circle the items you are questioning.
Keep your original copy for your own records.
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Prepare a letter to the CRA that provided you with the report in
question, and request to have the erroneous item(s) removed. If
you have proof of payment for an item in question, include a
copy of that documentation. |
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Prepare a letter to the creditor reporting the problem,
especially if you feel you are a victim of fraud or identity
theft. Inform the creditor that you are disputing an error
reported to the CRA, state why the claim is inaccurate, and
include any relevant documentation to prove your point.
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Send
your correspondence via certified mail.
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You
should receive a response from the CRA within 30 to 45 days.
If the error has been corrected, they will send you a fresh copy of
your credit report at no charge to show you that the item has been
removed. They will also send a corrected report to any entity that
received a report that contained errors within the last six months.
If you
cannot have a disputed item removed, you have the right to include
your side of the story on the credit report. Your statement should
be a conciseexplanation(100 words or less) as to why you are
challenging the item in question. From that point on, this notation
will be included in your credit report as long as the item in
question remains on your report.
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