Whether you're buying a Columbia SC home, or just shopping for a new car, most every lender you apply to for a mortgage or loan will want to see your credit report and your FICO score. What most people don't realize is, the FICO score your lender pulls and the one you may have paid for are not always the same. In fact, in most cases, they are quite different.
This is why we say, "Do Not Buy Your FICO Score", because you're most likely not seeing what your lender sees.
To learn more and stay current on buying a Columbia SC home, and how your FICO score can play into your approval or denial of a mortgage, as well as tips and information on mortgages in general, check out our other articles by clicking on the Columbia SC Mortgage Info link to your right under Columbia SC Real Estate Categories.
A Columbia SC mortgage is more difficult to get these days than ever, but there are some things home buyers tend to do that delay, or even kill a deal.
This seems to be especially true during the time after signing a contract, and waiting for the home to close.
6 Things To Never Do When Trying to Obtain a Columbia SC Mortgage
- Don’t make any large purchases like a new car or a bunch of new furniture for your newly purchased home. New debt comes with it, including new monthly obligations. New obligations create new qualifications. People with new debt have higher ratios. Higher ratios make for riskier loans, and sometimes qualified borrowers no longer qualify.
- Don’t apply for new credit. It doesn’t matter whether it’s a new credit card or a new car, when you have your credit report run by organizations in multiple financial channels (mortgages, credit cards, autos, etc.), your FICO score will be affected. Lower credit scores can determine your interest rate and maybe even your eligibility for approval.
- Don’t deposit unusual cash into your bank accounts. By “unusual cash”, we mean, cash you would not normally come into, like money your parents gave you to help with the down payment. Lenders need to source your money and cash is not really traceable. Small, explainable deposits are fine, but getting $10,000 from your parents as a gift is not. Discuss the proper way to track your assets with your loan officer.
- Don’t co-sign any loans for anyone. When you co-sign, you are obligated. With that obligation comes higher ratios on your credit as well. Even if you swear you won’t be making the payments, the lender will be counting the payment against you.
- Don’t change banks or bank accounts. Remember, lenders need to source and track assets. That task is significantly easier when there is a consistency of accounts. Before you even transfer money between accounts, talk to your loan officer to make sure it won’t affect your mortgage application.
- Don’t close any credit accounts. Many people erroneously believe that having less available credit makes them less risky and more approvable. Wrong! A major component of your score is your length and depth of credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both those determinants of your FICO score.
The best advice we can give home buyers when applying for a Columbia SC mortgage is to fully disclose and discuss your plans with your loan officer or mortgage broker. The smallest little blip on your credit report could cause you to lose the house you’re waiting to close on! Wait until after you’ve closed on your new home before doing anything that could adversely affect your credit score or credit report.
Your FICO score is not a regular credit score. It is the brand of score most widely used in mortgage qualification. The FICO score was developed by Fair Isaac and a company known for developing risk assessment models.
It is a complex equation that is not fully disclosed. The information used to calculate your FICO score is found on your credit report and much of it is interdependent in the calculation. This makes it an extremely complex formula.
There are five main areas of the FICO score calculation:
The first and largest portion is your payment history, and it accounts for 35% of your FICO score. This looks at how well you do at paying you bills on time. It takes into account any late payments you might have and looks at the severity, how recent, and how often it happens. The formula reviews a total of seven years of your payment history.
The next 30% is your utilization. This is calculated by dividing your outstanding balances by your account limits. This is done across all your accounts and on an account by account basis.
How Credit History Affects Your Fico Score
15% of your FICO score calculation is your credit history. It is better defined as – how long have you had credit? There are two sub-factors that are considered: The age of your oldest account and the average age of all your accounts.
Inquiries make up the next 15%. These are better defined as how many times your credit report has been reviewed. There are two different types – soft and hard.
Soft is when anyone like yourself, an employer or insurance company, checks your report. Hard is when a creditor checks your report after you have applied for a new account.
The last 10% is your credit mix. This takes into account the credit that you use. There are few rules discussed, but using several different types of credit is in your favor. Many of these factors are interdependent which makes understanding and attempting to estimate your FICO score nearly impossible.
What is really important is that you know what goes into it and how you can impact your FICO score on a day to day basis. You can learn more about what goes into a credit score, and the complexity of the system, by reading this article at BestCredit.com.