Wednesday, February 24, 2010

Mortgage Qualification and Rates to Be Affected By Credit Scores

I had bought my current home with the help of home loans and I am very happy that I made the decision of availing a home loan. Now I am willing to invest on another property and wish to apply for a home loan this time as well. But everything is not as it was ten years ago. Recently, there have been modifications made to the model of calculating the score on consumer credit that influences the mortgages. It has been learnt that these modifications will have a huge impact on the borrower’s qualifying factors for home loans and the interest rate on mortgages. Refinancing of mortgages will also be affected. The modification issues that have brought about this difference are described here for better understanding of the new home loan policies.

The ratio of balance on credit to the limit on the loan has been a major factor influencing the qualifying factors for mortgage and insurance rates. You will have a better credit score when your available credit limit is higher than your credit balance. This modification will affect borrowers of home loans when the issuers of credit cards will reduce the maximum limit of available credit to the card holders. If your credit balance to credit limit ratio is less than or equal to 3%, then you will be benefited by this modification.

Ten years ago, I had to close three bank accounts as having many accounts was viewed as a negative factor in credit scores. But now, the modification in the credit calculation rule views the presence of many active accounts as a positive factor in calculating credit scores. But please note that these accounts must not be new or delinquent. However, having collection accounts with a minimum of $100 is now overlooked. If you are a borrower with debts from unpaid library fees, petty medical and parking bills, or such other small disagreements, then you are in for a benefit. Such issues are no longer a hindrance to credit scores.

Also, if you having the least negative issues in your credit report is an added advantage. In the new scoring model, isolated problems in credit history has a lesser impact on credit scores. The previous scoring pattern allowed credit card users to build a positive profile on credit even if they were not the main card holder. But the modification has now banned the non primary card holders with the ability to put together a decent credit history.

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