Credit FAQ

Your credit is extremely important to the mortgage process. In order to qualifying for a mortgage, your lender will want to assess what kind of risk you will be. Much of that risk is determined from your credit score which can be an indicator of your ability to manage credit and repay debts on a timely basis. Additionally, the information from your credit report will help determine what loan products you qualify for, interest rates, and other key factors of the mortgage.

What is my credit score?

Your credit score is essentially a grade of your entire credit history. Your score is determined by several factors that are weighed in different ways to determine your credit worthiness. You are scored primarily on the amount of debts owed and your payment history. Other factors include the length of your credit history, new credit, and the types of credit used.

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How can I get a copy of my credit score and credit report?

You can obtain one free credit report per year directly from Alera Financial. We provide a mortgage credit report which is scored by the mortgage industry differently than the standard credit report. Go to our Free Credit Report section to quickly register and receive an online copy of your mortgage credit report and your score.

You may also receive a copy of your standard credit report is directly from the credit bureaus. You are entitled to one free credit report a year, however, they will not provide your credit score:

Equifax
PO Box 740241
Atlanta, GA 30374

Trans Union
PO Box 2000
Chester, PA 19022

Experian
PO Box 2002
Allen, TX 75013

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How do I know if I have a good credit score?

Credit scores can range anywhere from 380 to 850. The average credit score of most Americans is in the mid-600’s. From a mortgage perspective, any credit score over 720 will give you the most loan program options. Scores ranging from 500 to 720 will also have a variety of options available depending on other aspects of your loan program. Scores below 500 may need assistance with credit repair before qualifying for a mortgage.

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I have mistakes on my credit report. What should I do?

The best way to resolve mistakes on your credit report is to deal with the credit bureaus directly. In many cases, you are wasting your time dealing directly with the reporting creditor. The only way to ensure action is to dispute items directly with Equifax, Experian, and Trans Union. You have federal rights that protect you under the Fair Credit Reporting Act which states that you can dispute anything on your credit report that you feel is inaccurate. The credit bureaus are required, by law, to investigate your claims and provide you with an updated copy of their findings within 30 days.

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What if another lender has already turned me down?

Lenders and the loan programs they offer can vary greatly. Just like any other service, different lenders have different loan products. Because you are denied by one lender does not mean another company may not be able to help you. For example, for our borrowers that cannot immediately qualify for a mortgage, Alera Financial provides several credit counseling programs as an added service.

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Can you help me if I have a bankruptcy?

Absolutely. In some ways, it may be easier to achieve financing because you have eliminated all of your “bad debt” obligations through the bankruptcy discharge. The key to success is your credit activity after the bankruptcy.

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Can I buy a house if I have been through a foreclosure?

Yes. There are some loan programs that will allow you to purchase again just 12 months from the resolution of a foreclosure.

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I have a lot of debt but pay everything on time. Is that okay?

Not necessarily. You may have perfect credit, but have a high debt load. Lenders look at your monthly income and a total of the bills you have each month. They also look at your potential house payment and current obligations in relation to your income. This is called the debt-to-income ratio. This ratio determines how much home you can qualify for. So if you have a large amount of debt, it could seriously affect how much home you can qualify for.

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Should I have a lot of open credit and no debt?

The general consensus is to have a good mix of credit, and not too many of one type of accounts. For example, having ten open credit cards can hurt your score. As a rule of thumb, try to have a good mix of accounts. For example, the best mix is typically considered one mortgage, one installment loan, and two to three credit card accounts per person.

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I don’t have any credit. Can I get a house?

Yes. Loan programs such as FHA do not discriminate due to a lack of credit. But be advised, even though FHA does not require you to have a credit history, you will still need to show proof of your ability to make monthly payments in a timely manner. This can be achieved by acquiring 12-month pay histories on things such as rent and utility bills.

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How can I get credit?

The easiest way to obtain credit is by acquiring and maintaining credit card accounts. Whether you have no credit or bad credit, there are banks that exist that try to help individuals build or re-build their credit. Do some investigating and try to find the best credit card deals available to you in regard to interest rates and yearly fees.

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How can I improve my credit score?

There are several factors that are important for credit scores. However, if your follow these 5 rules, everything else will take care of itself:

1.	Make sure all payments are made on time. Nothing affects your credit score more than your account pay history.
2.	Keep your credit card balances at a minimum. Only use your credit as needed and try to keep your credit card balances low. Using all of your available credit or “maxing out” your credit limits can negatively affect scores even if you are making your payments on time.
3.	Limit credit inquiries. Every time you apply for credit, the creditor pulls a copy of your credit report and it shows up as an inquiry. If you have too many inquiries, it can negatively affect your score.
4.	Try to have a good mix of credit and not too many of one type of account. For example, twelve open credit card accounts is not good.
5.	The length of time your accounts are open also affect your score. The longer your accounts have been open, the better your score will be. For example, someone who constantly closes out 2 or 3 accounts every few months or so just to replace them with new accounts later on will not have scores as good as someone who has had the same 2 or 3 accounts for several years.

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I don’t believe in using credit cards. Is that a problem?

No, not necessarily. Credit card accounts are not needed as long as you have established other types of accounts, have had no collections, and have good pay histories.

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I have some old debts on my credit report. Will paying them off help my score?

Not immediately. Once a debt becomes a collection, the damage is done. Paying off these debts will not immediately affect your scores. However, resolving these debts will make it easier for your new credit to bring your scores up over the subsequent months providing that it is in good standing.

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