It is your right to be able to shop around for the best possible mortgage, the same way you would a car or any other big-ticket item. Mortgage brokers love to tell you after they have just pulled your credit not to let any other mortgage companies pull your credit because that will lower your scores. By doing this they are looking out for your best interest to ensure you get the mortgage loan product that suits your individual needs.
When a Mississauga mortgage broker pulls your credit to analyze your credit report, your credit score is not the only thing a mortgage broker looks at.
The first item I look for at the top of the credit bureau is the percentage of revolving debt you are carrying on your credit cards versus your total credit line. In other words, are your cards maxed out? Revolving credit is all your credit cards.
What is the first thing we all do when money is tight? We rack up our credit card debt. A high percentage of credit card debt is a leading indicator when someone is getting into trouble with his or her finances. The credit bureaus are well aware of that fact.
When someone’s revolving debt goes above 50% of their total available credit line for all their credit cards, bells and whistles start going off at the credit bureaus. If you get one late payment on your mortgage or credit cards when your revolving debt is maxed out; the bureaus will swoop in quickly, dramatically lowering your credit scores.
Be aware of your credit lines for all your credit cards and try to keep the balances below 50% of their high limits.
The next thing I ask myself when looking over a customer’s credit report is have there been any late payments on the mortgage history in the last year? The bank considers you late if you have not made your mortgage payment within 30 days past the due date.
Making the mortgage payment on time is more important than any other bill as it carries the most amount of weight with the credit bureaus. It also keeps a roof over your head!
Fortunately, late payments are not held against you once 12 months have gone by from your last late payment. In this biz when someone has no late payments in the past 12 months, we call this a “0 by 30”. If someone has one late payment in the past 12 months, that is a 1 by 30. Two late payments is a 1 by 60. Three late payments is a 1 by 90 and four months without paying your mortgage is a 1 by 120 and is also considered by many banks foreclosure status. After five months of not paying your mortgage, almost all conventional banks will send you a (NOD) Notice of Default and begin foreclosure proceedings.
The last important item that I look at on a credit report is the credit scores, also known as your Fico scores.
The three major credit bureaus that almost all banks use to determine your credit scores are Equifax, Trans Union, and Experian. Banks and mortgage brokers pull a tri-merge credit report to see what all three bureaus are reporting. Once the three scores are obtained, the middle score of the three scores is what is used to rate your credit.
Scores can range from 300 to 850. You have to do something bad with your credit to have a mid score in the 300’s and you would have to be a credit superstar to have your mid score in the 800s. In the years I have been in the leasing and mortgage industry I have never seen a mid score in the 300’s and only a few times have I seen a mid score in the 800s.
The line in the sand for most subprime banks is 500. If your mid score is below 500 you need to work on repairing your credit before trying to buy or refinance a home. However with the severe mortgage crisis, we are in right now, many subprime banks have raised their minimums to 525. Some will not touch a loan unless they are 600 and above. Scores below 680 are usually considered for subprime banks and scores above 680 are usually considered for A-paper banks.
There are many other factors that mortgage brokers in Mississauga look at when looking over a customer’s credit report. However, the percentage of revolving credit, mortgage history, and scores are some of the most important factors. Other important factors listed at the back of a credit bureau are any public records such as the history of bankruptcy and liens.